A Senate bill that would restore a low interest rate on one type of federal student loan for another year failed to clear a procedural hurdle Wednesday, sending the issue back to the negotiating table as lawmakers try to reach a consensus before the August recess.
The bill would have also bought lawmakers more time to craft a long-term strategy for setting interest rates for all federal education loans.
The vote was mostly along party lines, with 51 in favor and 49 opposed, well short of the 60 “yes” votes need to advance the bill.
Senate Majority Leader Harry M. Reid (D-Nev.) met for hours with White House Chief of Staff Denis McDonough and Education Secretary Arne Duncan on Tuesday to discuss a resolution to the matter, but even those intense discussions were not enough to get the bill unstuck.
The proposal at the center of Wednesday’s vote addressed only subsidized Stafford loans, which are mostly used by low- and middle-income students. For two years, the rate has been 3.4 percent instead of the standard 6.8 percent. That rate expired July 1. The bill would have restored the 3.4 percent for another year.
There was also a heated debate at a weekly luncheon for Democratic senators Tuesday, during which Sen. Elizabeth Warren (D-Mass.) criticized a bipartisan bill sponsored by Sen. Joe Manchin III (D-W.Va.) and mostly Republicans. That bill proposes scrapping a set interest rate for all major federal education loans and, instead, setting the rate each year based on the market. The bill does not set a formal cap on how high those rates could go. Warren has said this system will lead to the government continuing to profit off student loans.
Manchin and some of the bill’s co-sponsors insisted on Tuesday afternoon that a formal cap is not needed because of other safeguards in place. They said all students need swift interest rate relief.
In addition to the subsidized Stafford loans, the government also offers loans to undergraduates, graduate students and parents that have rates of 6.8 and 7.9 percent. These loans make up about 60 percent of the more than $100 billion loaned out each year. Members of both parties have questioned whether those fixed rates are too high given the current market.
The House passed a bill in May that would set these rates according to the market, up to 8.5 percent. Those rates could change over the life of a loan. Obama has threatened to veto this measure.