Legislation would stop student loan rates from doubling on July 1. Senators close to student loan deal

A bipartisan group of senators is close to reaching an agreement to stop student loan rates from doubling on July 1, aides said Thursday afternoon.

The legislation would represent a compromise between the plan pitched by President Barack Obama and Senate Republicans. It would link the rate of new loans to Treasury bonds and lock the rate in for the life of the loan — a key priority for the White House that was missing from a House Republican bill.


Senate Democratic leadership has not signed off yet on the deal and it’s unclear when the proposal could get a vote with immigration legislation still pending a vote on the Senate floor.

( Also on POLITICO: Arne Duncan to visit Hill on student loans)

“[The deal is] sort of a middle ground between the Republican one and the White House,” said one Senate aide.

If the rates are allowed to double from 3.4 percent to 6.8 percent on July 1, it’s not something many voters are likely to miss, making this the type of issue that has real political consequences for whoever is seen as being to blame for inaction.

If anything is to happen before the deadline — and Congress has demonstrated in recent months a tendency to push deadlines — it will have to come first from the Senate since the House has already passed its own bill.

Senate Democrats didn’t unite behind any one proposal during a Thursday lunch with top administration officials, including White House chief of staff Denis McDonough. Democrats floated capping student right as one potential solution, a source familiar with the meeting said, and the administration said it is open to changes to Obama’s proposal in order to find a middle ground.

The key negotiators on the possible deal that could offer a lifeline to the nettlesome student loan issue as the deadline nears are Sens. Angus King (I-Maine), Joe Manchin (D-W.Va.), Richard Burr (R-N.C.) and Tom Coburn (R-Okla.), sources said.

They got good news on Thursday afternoon: The legislation they have drafted would reduce the federal deficit by $8.6 billion over 10 years, according to the Congressional Budget Office. The bill likely will be tweaked further after receiving the CBO score so as to make it deficit neutral, according to a Senate aide.

The CBO score was a big breakthrough: Lawmakers and aides working closely on the compromise were worried their plan might actually increase the deficit.

The deficit impact has become a political football: Republicans are refusing to back anything that increases the deficit. Democrats are arguing that Republicans are trying to reduce the deficit on the backs of students.

For weeks, compromise seemed elusive. The Senate was at a stalemate.

House Republicans keep proclaiming that the Senate is the problem and they’ve done their duty in passing a bill. Except it’s not one that can get any Democratic support and would be vetoed by the president.

House Democrats are trying to blame Republicans, saying they didn’t pass legislation anyone else can support. But they’ve been ignoring the lack of action so far by their colleagues in the Senate.

At the root of partisan fighting is a plethora of proposals.

House Speaker John Boehner (R-Ohio) likes to say that the House-passed proposal is identical to the one advanced by Obama — both proposals called for a market-based solution.

“Republicans embraced the idea, and the House recently passed the Smarter Solutions for Students Act, a plan echoing your own,” Boehner said in a letter to Obama on Thursday.

The House proposal ties student loan interest rates to 10-year Treasury notes, allowing the rate to fluctuate with the economy. With the recession still driving the Treasury decision, interest rates remain low. The proposal includes a cap on rates, ensuring that in profitable economic times, the student loan rates don’t soar.

But there is a key difference between the House plan and the president’s proposal.

The House bill would recalculate the interest rates every year. Students could borrow at one rate, but then see their interest rates increase in future years on the same loan. Democrats say that system is comparable to variable-rate mortgages, which were blamed for helping sink the housing market in the last recession.

“A rate that continues to vary after the loan has already been taken out would create uncertainty and lessen transparency for students and their families who are making decisions about borrowing for college,” the administration said in a notice threatening the veto the bill.

Two different attempts to find compromise in the Senate have been defeated.

Senate Democrats would have frozen the rates for another two years and paid for the extension through closing tax loopholes the party has been pushing for anyway. The White House had encouraged passage of this proposal.

Tennessee Republican Sen. Lamar Alexander’s proposal most closely resembles the president’s, tying rates to Treasury notes and not adjusting the rates over the life of the loan. But it doesn’t include some of the president’s other proposals, including measures meant to help low-income students.

Alexander’s proposal was defeated by Senate Democrats.

Boehner also sought to put Republicans and Obama in the same camp against Senate Democrats.

“Frankly, there is no evidence that Democrats are making a sincere effort to get a bill passed in the Senate,” Boehner wrote. “With Republicans and you in general agreement on the policy, it is difficult to identify any motivation other than politics to explain why a solution has not already been signed into law.”

Minority Leader Nancy Pelosi (R-Calif.) called her own press conference, standing in front of rows of college students and featuring campus leaders who explained what the difference in loan costs could mean for them individually.

Pelosi argued against the idea that House Republicans have actually proposed a compromise.

“Take action here, then you have some standing to criticize what others haven’t done,” Pelosi said when asked about Boehner’s criticism of Senate Democrats. “The action that we need to take here is not to have a bill that will more than double the student loans.”

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