President Barack Obama Friday signed into law a bipartisan student loan bill which the House overwhelmingly approved late week. The Senate OK’d the measure by a vote of 81 to 18 two weeks ago.
Without congressional action, interest rates on loans to college students were increasing from 3.4 percent to 6.8 percent. But under the law signed by Obama the interest rate for undergraduate loans will fall back to 3.86 percent. The interest rate on graduate student loans will be 5.41 percent.
Obama’s signature on the bill ends months of arguments over how much the federal government should subsidize student loans and whether students in the next several years will face crushing repayment burdens if interest rates go up, as most observers expect they will.
In the Senate, the compromise bill was crafted by a bipartisan group including Sens. Joe Manchin, D-W.V., Richard Burr, R-N.C., and Angus King, I-Maine.
“We have demonstrated to the American people that this body has the capacity to overcome partisan differences….,” King said when the Senate passed the bill. He said the bill “offers a long-term, market-based solution that lowers and caps interest rates for all students taking out a loan and finally gets Congress out of the business of setting rates.”
At the signing ceremony at the White House, attended by King and other members of Congress, Obama said it "feels good signing bills. I haven't done this in a while."
Under the new law, the government establishes variable interest rates on Stafford loans for undergraduate college students, but caps the rate at 8.25 percent. The variable rate each year will be pegged to the rate on 10-year Treasury notes, plus 2.05 percent.
The law also sets the interest rate on loans issued to graduate or professional students at the rate on high-yield 10-year Treasury notes plus 3.6 percent, but caps that rate at 9.5 percent.
The law applies to loans made on or after July 1.
In June, Senate Democrats got 51 votes for a measure offered by Sen. Jack Reed, D- R.I., that would have set a fixed 3.4 percent interest rate for student loans over the next two years, but Reed fell short of the 60 votes needed to overcome a potential filibuster. All Democratic senators except Manchin voted to advance Reed’s measure to final passage; no Republican voted for it.
One Democrat who supported the Reed bill, Sen. Elizabeth Warren of Massachusetts, called the final compromise bill “obscene.” She said that supporters of the bill “say that it will lower interest rates for students this year, and that's all that matters. That's the same thing the credit card companies said when they sold zero-interest credit cards and the same thing subprime mortgage lenders said when they sold teaser rate mortgages.”
She added, “Nobody disputes the fact that within just a few years, according to our best estimates, students, all students, will end up paying far higher interest rates on their loans than they do right now.”
This story was originally published on Fri Aug 9, 2013 2:52 PM EDT