WASHINGTON – Borrowing for tuition, housing and books would be less expensive for college students and their parents this fall but the costs could soon start climbing under a bill the Senate passed overwhelmingly Wednesday.

The bipartisan proposal would link interest rates on federal student loans to the financial markets, providing lower interest rates right away but higher ones later if the economy improves as expected. The measure was similar to one that already had passed the Republican-led House and leaders from both chambers said they predicted the differences to be resolved before students start signing loan documents for the fall term. “This compromise is a major victory for our nation’s students,” President Obama said in a statement.

Undergraduates this fall would borrow at a 3.9 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.

Liberal members of the Democratic caucus were vocal in their opposition over the potentially shifting rates included in the Senate measure, which passed with support from both parties, 81-18. The bill passed with support from 45 Republicans, 35 Democrats and Sen. Angus King, the independent from Maine who helped negotiate the deal.

Sen. Mike Lee, R-Utah, joined 16 Democrats and Sen. Bernie Sanders, the Vermont independent who caucuses with Democrats, to oppose the legislation.

Sen. Claire McCaskill, D-Mo., did not cast a recorded vote.

“This permanent, market-based plan makes students’ loans cheaper, simpler and more certain,” said Sen. Lamar Alexander, the top Republican on the Senate education panel. “It ends the annual game of Congress playing politics with student loan interest rates at the expense of students planning their futures.”

Rates on new subsidized Stafford loans doubled to 6.8 percent July 1 because Congress could not agree on a way to keep them at 3.4 percent. Without congressional action, rates would stay at 6.8 percent – a reality most lawmakers called unacceptable, although deep differences emerged even among allies as to how to remedy it.

The compromise that came together during the last few weeks would be a good deal for all students through the 2015 academic year. After that, interest rates are expected to climb above where they were when students left campus in the spring, if congressional estimates prove correct.

“That’s the same thing credit card companies said when they sold zero-interest rate credit cards. … The bill comes due,” said Sen. Elizabeth Warren, D-Mass. “All students will end up paying far higher interest rates on their loans than they do now.”

Maine’s other senator, Republican Susan Collins, also supported the bill.

King was a key player in brokering the bill, having pledged to do so throughout his Senate campaign last year.

“This is why I came here,” an ecstatic King said after the vote Wednesday night.

King began working on the issue with Sen. Joe Manchin, D-W.Va., soon after competing Republican and Democratic proposals failed. Their group soon grew to include several more Democrats and Republican and eventually picked up the endorsement of the White House following a meeting last week with President Obama and Vice President Joe Biden.

King said the bill would produce immediate results. “We know that right now 6.8 percent is grossly high and we can give relief to students for the next two to three years that is worth billions of dollars,” King said.

 

Kevin Miller, Press Herald Washington, D.C., bureau chief contributed to this report.