After lots of late-night wrangling, the Senate appears to have struck a bipartisan deal on student loan interest rates, some of which doubled earlier this month. What's more, Senate sources say it will likely pass the House as well. So what's in the bargain? Here's a quick rundown.
Much as they were before summer of 2006, the rate on new loans will now be based on the government's own cost of borrowing. According to Inside Higher Ed, undergraduates will pay interest equal to the yield on 10-year Treasury notes, plus 1.8 percent. For grad school loans, it will be the T-Bill plus 3.8 percent, and for parent loans the government will add 4.5 percent. Rates will be fixed for the life of the loans, and capped for 8.25 percent for undergraduates, and 9.25 percent for grad students.
Based on the Congressional Budget Office's interest rate projections (table B-1), here's what that will look like.
So how does that compare to now? Until it doubled earlier this month, the rate on need-based subsidized Stafford loans was a fixed, 3.4 percent. For regular Staffords, student pay a fixed 6.8 percent. Meanwhile, parents and grad students currently pay the same 7.9 percent rate. So the second Treasury yileds rise above 5 percent, which theoretically should happen if the economy ever really gets healthy, pretty much all new borrowers will be paying more than students (or parents) today. Also, subsidized loans, which tend to go to poor and middle class students, will no longer carry a lower interest than unsubsidized loans, as they have for the past several years.