By Susan Davis, USA TODAY
WASHINGTON - A bipartisan coalition of senators is working on acompromise to avert an impending July 1 doubling of subsidized Staffordloan interest rates that would affect as many as 7 million collegestudents.
The draft proposal gained momentum Thursdayfollowing a private meeting between Senate Democrats and White Housechief of staff Denis McDonough, according to senators who attended themeeting.
"There's some meaningful bipartisan conversationgoing on and I think we're starting to narrow down the actual areas ofagreement and difference," said Senate Majority Whip Dick Durbin,D-Ill., who added that it remained possible to approve legislation aheadof the July 1 deadline, when interest rates are set to jump from 3.4%to 6.8%. If the deadline passes, Congress could still address the loanrate retroactively.
The compromise under negotiation wouldcreate a three-tier loan-rate system for undergraduate, graduate, andPLUS loans which would be tied to the interest rate on a 10-yearTreasury note and would be locked at the initial rate for the life ofthe loan.
For example, under the draft proposal, interestrates today would be 3.81% for undergraduate loans, 5.31% for graduateloans, and 6.31% for PLUS loans. Each of the loan rates is lower thanthe 6.8% rate that would affect all borrowers if no action is taken.
Senators working on the compromise include Richard Burr, R-N.C.;Tom Coburn, R-Okla.; Joe Manchin, D-W.Va.; and Angus King, I-Maine.
The student loan debate is a rare circumstance in which the WhiteHouse policy position more closely tracks with Republicans thancongressional Democrats.
Both President Obama and leadingRepublicans have offered proposals to tie loan rates to the interestrates on a 10-year Treasury note instead of current law which allowsCongress to set the rate. Democrats prefer a two-year extension of thecurrent rate in order to allow more time to revamp the student loanprogram next year when Congress reauthorizes the Higher Education Act.
Sen. Tom Harkin, D-Iowa, has been a staunch advocate ofextending the current rates, but he acknowledged Thursday that consensusmay be building around this deal. Harkin, who chairs the Senate Health,Education, Labor and Pensions Committee, added, "Next year we will havethe Higher Education Act on the floor so the things that are done nowcan be revisited."
But Harkin insisted that any finalcompromise would need to include caps on interest rates. "A cap is notnegotiable. We have to have a cap," Harkin said.
Republicanswere buoyed by a report from the non-partisan Congressional BudgetOffice that said the proposal would save $8.6 billion over the next 10years if enacted. Cost savings are critical for GOP support.
The Republican-led House has already approved a competing student loanplan, but it faces a veto threat from the White House. House SpeakerJohn Boehner, R-Ohio, sent Obama a terse letter Thursday, calling on himto put pressure on Senate Democrats to pass a bill. "With Republicansand you in general agreement on the policy, it is difficult to identifyany motivation other than politics to explain why a solution has notalready been signed into law," Boehner wrote.
Congress lowered interest rates on subsidized student loans in 2007 from 6.8% to 3.4% but that legislation expires July 1.