WASHINGTON — A small group of senators, including Maine Sen. Angus King, rushed Wednesday to finalize a last-minute compromise to prevent interest rates on federal student loans from doubling next month.
But the prospects of a deal were uncertain as Democrats and Republicans continued to disagree on how, precisely, to calculate interest rates moving forward.
“There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families, instead of closing tax loopholes for the wealthiest Americans and big corporations,” Adam Jentleson, spokesman for Senate Majority Leader Harry Reid, D-Nev., said Wednesday afternoon.
Absent congressional action, the interest rate for new subsidized Stafford loans will double from 3.4 percent to 6.8 percent on July 1. The rate hike would mean thousands of dollars in additional payments over the lifetime of the loans for many borrowers.
More than 70 percent of college students graduating from Maine’s public and private colleges in 2011 began their post-collegiate careers with student loan debts. The average debt in Maine was $26,046, ranking 18th in the nation that year, according to a state-by-state report by the Project on Student Debt.
Maine undergraduate Kelsea Dunham is among those closely watching events in Washington this week.
A single mother pursuing two undergraduate degrees at the University of Southern Maine, Dunham said grants cover most of her tuition but that the income from her work-study job is inadequate to cover the rest plus living expenses for her and her 7-year-old. So she relies on student loans to help pay for her rent, food and other necessities.
“And I know I’m not the only one in that boat,” said Dunham, who was elected president of the USM student body earlier this year. “So it really does matter. The fact that rates are going to double means we are going to have debt later on.”
After days of negotiations, King and four other senators sketched out the details Wednesday evening of a proposal that would tie interest rates for new Stafford loans to the 10-year Treasury note plus 1.85 percent for undergraduate loans. That change has long been sought by some Republicans uncomfortable with the current practice of allowing Congress to set rates.
In an attempt to win additional Democratic support, the proposal would fix interest rates for the life of the loan and would allow borrowers to consolidate later at a capped rate of 8.25 percent. The proposal borrows heavily from a Republican-backed bill that passed the House and a proposal from the Obama administration.
The bipartisan negotiations have been led by Sen. Joe Manchin, D-W. Va. The other members of the group are King and Republican Sens. Richard Burr of North Carolina, Tom Coburn of Oklahoma and Lamar Alexander of Tennessee.
“Our solution successfully builds on the many credible proposals put forward by members on both sides of the aisle, as well as the president, to help make college an affordable reality,” King said in a statement. “This bipartisan bill demonstrates that we can bridge the partisan divide and work together in the best interest of the American people.”
But some reports have questioned if the deal will keep rates low over the long term.
According to The Associated Press, undergraduate borrowers this fall would pay 3.6 percent interest rates, graduate students would pay 5.2 percent and parents would pay 6.2 percent. In future years, those rates could climb and there was not a cap on how high they could go.
But if the Congressional Budget Office estimates for 10-year Treasury notes hold, students might be better off if rates double as scheduled. The low-at-first undergraduate rates would rise to the current 6.8 percent for the 2017 year and reach 7.2 percent the next year under the compromise proposal, the AP reported.
Student loan debts in Maine were just shy of the national average of $26,600 in 2011, according to the Project on Student Debt at the Institute for College Access and Success. That was up more than $1,300 — or 5 percent — from the previous year.
Bowdoin Student Government sent a letter to members of Maine’s congressional delegation on Wednesday as part of a broader push by college student leaders nationwide urging Congress to act.
Specifically, the letter recommends income-based repayment plans, reinvesting any cost savings in financial aid programs and capping rate increases if Congress ties rates to the financial markets. Absent long-term reforms, the Bowdoin student leaders said the current rates should be extended.
“Our classmates and their families represent a broad range of ideologies and backgrounds,” student government president Sarah Nelson wrote. “However, the vast majority of students on this campus and campuses across the country are rallying again, as we did last year, around the belief that everyone should have access to world-class education at an institution like Bowdoin.”
Congress is slated to wrap up its work by Friday before returning home for a nine-day recess. But even if both the Senate and House were able to quickly pass a bill by July 1, President Obama will not be back from a trip to Africa until after July 1.
There are suggestions, however, that Congress could take up the bill after their return and make the changes effective retroactively.
Washington Bureau Chief Kevin Miller can be contacted at: 207-317-6256 or at:
On Twitter: @KevinMillerDC