Deal emerging on student loans, talks continue

WASHINGTON — An emerging deal to lower interest rates on student loans took shape Thursday, offering Democrats promises that interest rates would not reach 10 percent and giving Republicans a link between borrowing terms and the financial markets.

Lawmakers and their aides were in talks about how they might reduce rates on subsidized Stafford loans, which doubled to 6.8 percent last week in the wake of congressional inaction. Efforts to restore those rates to 3.4 percent were abandoned in favor of a new compromise that bears many similarities with a bill that House Republicans have passed, and with President Barack Obama's budget proposal.

Under the plan lawmakers are considering, interest rates on new loans would be based on the 10-year Treasury note plus an additional percentage to pay for administrative costs.

Undergraduate students would see a better deal than the current 6.8 percent rate but could face higher costs if the economy improves and Treasury notes become more expensive. Rates for students this fall would be around 4 percent and would be capped at 8.25 percent in future years.

Graduate students and parents, too, could find better deals next year but again would face higher rates than the current 7.9 percent. Borrowing for those PLUS loans would be around 6 percent this fall and capped at 9.25 percent in coming years.

Lawmakers were still working on specific rates but both parties were in rough agreement on the numbers. They were waiting for the Congressional Budget Office to double check their math to make sure the proposal did not cost taxpayers or generate too much profit.

Talk of a compromise came just hours after Democratic-led efforts to restore the 3.4 percent interest rates failed to overcome a procedural hurdle in the Senate. After several failures to find a stopgap measure, Democrats abandoned that tactic and instead looked for a compromise.

Lawmakers met Wednesday in Democratic Sen. Dick Durbin's office to discuss the next steps and that meeting suggested a compromise could be found.

Sen. Tom Harkin, the Democratic chairman of the Senate education panel, took part in conversations Wednesday and Thursday on a potential deal he previously called unacceptable. The main authors of that potential deal, Democratic Sen. Joe Manchin of West Virginia and Republican Sen. Richard Burr of North Carolina, said they were willing to tinker with some of the details to make it more acceptable to Harkin and his Democratic allies.

Sen. Lamar Alexander, the top Republican on the Senate education panel, also joined the talks.

“We must focus our attention now on a long-term solution such as the president supports, the House of Representatives has passed and a group of Republican, Democratic and independent senators have proposed,” Alexander said.

A deal could be announced as early as Thursday, and a vote could be scheduled as quickly as Tuesday.

If fresh negotiations prove fruitless, millions of students returning to campus next month will find borrowing terms twice as high as when school let out. Without congressional action in the coming weeks, the increase could mean an extra $2,600 for an average student returning to campus this fall, according to Congress' Joint Economic Committee.