A Senate bill that would freeze a low interest rate on one type of federal student loan for another year, along with buying lawmakers more time to craft a long-term strategy for setting all education loan interest rates, failed to clear a procedural vote Wednesday afternoon. That bounces the issue back to negotiations yet again, as lawmakers try to reach a consensus before the August recess, at which point most students will have to lock in their loans for the coming school year.
The vote was 51 in favor and 49 opposed, not enough to advance the bill.
The failed key test vote came after contentious discussions Tuesday, much of it between Democrats who have been split on the issue. Senate Majority Leader Harry M. Reid (D-Nev.) met for hours with White House Chief of Staff Denis McDonough and Education Secretary Arne Duncan. At the weekly Democratic caucus luncheon, Sen. Elizabeth Warren (D-Mass.) harshly criticized Sen. Joe Manchin III (D-W.Va.) for sponsoring a bill with Republicans that would tie interest rates for all major federal education loans to market rates but would not impose a formal cap on how high those rates could go in future years.
After that lunch, Reid addressed reporters and stressed that lawmakers need to approve the rate extension instead of not taking action. Reid and other leaders have opposed allowing for an ever-changing interest rate without a stated cap to protect future generations of students from much higher rates. Just steps away, Manchin and two co-sponsors of the other bill hosted their own media event, saying that all students need interest rate relief and senators cannot continue to delay making a decision.
For the past several years, the federal government has slowly lowered the interest rate for new subsidized Stafford loans, which are available to students with financial need and taken out by millions of undergraduates each year. For the past two years, the rate has been 3.4 percent. That rate expired July 1, bouncing it back to 6.8 percent. Interest rates on other education loans offered by the government, which make up the bulk of loan disbursements each year, have rates of 6.8 and 7.9 percent. Right now, interest rates of all sorts are at low levels, making these fixed rates seem high for a government loan.
The doubling of the interest rate will impact the more than 7 million undergraduates who are expected to take out one of these loans for the coming school year. When they finish or leave school, many could see a loan bill that's $17 to $24 higher per month. While this is an added burden for low-income students, higher education leaders do not expect it to dramatically impact enrollments.