WASHINGTON (AP) — Borrowing for tuition, housing and books would be less expensive for college students and their parents this fall but the costs would start climbing almost immediately under a deal the Senate was poised to pass Wednesday.
The bipartisan proposal lawmakers were considering would link interest rates on federal student loans to the financial markets, providing lower interest rates right away but higher ones if the economy improves as expected. Senate aides said lawmakers were on track to finish work by late Wednesday afternoon.
Liberal Democrats labeled the White House-backed proposal a bait-and-switch measure that would lure in new borrowers with low rates now but would cost future students.
"The bill before us today offers students and families lower student loan interest rates in the near-term but we can fully expect higher student loan interest rates in the years to come," said Sen. Tammy Baldwin, D-Wis. "Why on earth would we want to expose our students to higher rates?"
The White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges. Democratic leaders expected widespread defections from within their ranks but expected Republican support would help them win passage.
But there was no denying the new structure could cost future students if the economy improves as expected and interest rates climb. The White House's allies instead suggested the new formula is better than the status quo.
"At the end of the day, we have a very clear choice to make: stick with the 6.8 percent interest rate or lower it," said Sen. Dick Durbin, the Illinois Democrat who oversaw the negotiations.
Durbin said senators' concerns could be part of talks this fall on the Higher Education Act. But for students right now, he said, students needed the compromise to pass to dodge higher costs.
Rates on 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.
Under the bipartisan deal, undergraduates this fall could borrow at a 3.9 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents could borrow at 6.4 percent. Those rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.
The compromise could be a good deal for 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."
As part of the compromise, Democrats won a protection for students by capping rates at a maximum 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents' rates would top out at 10.5 percent.
Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.
But even among those who planned to vote for it, frustrations remained evident.
"The bill that is before us represents a number of compromises that were made on both sides," said Sen. Tom Harkin, the Iowa Democrat who chairs the Senate Health, Education, Labor and Pensions Committee.
Harkin said the legislation is not what he would have written if he had the final say but he also said that he recognizes the need to restore the lower rates on students before they return to campus for classes.
"It's the best that we can do," Harkin said on the Senate floor. "If we don't pass this today, there will be one sure effect: student loans will be almost twice what they would be under this bill."
Most Senate Republicans who pushed for interest rates to be linked to the financial markets were likely to vote for the measure. It was negotiated by Democratic Sen. Joe Manchin of West Virginia and GOP Sens. Richard Burr of North Carolina and Lamar Alexander of Tennessee, the top Republican on the Senate Health, Education, Labor and Pensions Committee.
"You want to help the middle class? This is where the middle class is," Manchin told his colleagues. "We all came here to help our constituents."
The compromise negotiated in the Senate closely hews to what House Republicans passed this year, and that's a sticking point for some liberals.
Sen. Jack Reed, D-R.I., pushed for an extension of the current 3.4 percent rate so lawmakers could address the subject this fall during the revision of the Higher Education Act.
"At some point, it's going to be a much worse deal," Reed said. "It goes up and up and up and up."
The Congressional Budget Office estimated the bill as written would reduce the deficit by $715 million over the next decade. During that same time, federal loans would be a $1.4 trillion program.
"We've got to get out of the business of making profits of struggling families who want nothing more than to be able to send their kids to college," said Sen. Bernie Sanders, a Vermont independent who caucuses with Democrats. "This legislation only makes a bad situation worse."