“Students are going to have a better deal than they would have had otherwise,” Harkin said.
Under the deal, all undergraduates this fall could borrow at a 3.85 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents would be able to borrow at 6.4 percent. Those rates would climb as the economy improves and it becomes more expensive for the government to borrow money.
Undergraduates last year borrowed at 3.4 percent or 6.8 percent, depending on their financial need. Graduate students had access to federal loans at 6.8 percent and parents borrowed at 7.9 percent.
The interest rates would be linked to financial markets, but Democrats won a protection for students that rates would never climb higher than 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents’ rates would top out at 10.5 percent.
The bipartisan agreement is expected to be the final in a string of efforts that have emerged from near-constant work to undo a rate hike that took hold for subsidized Stafford loans on July 1. Rates for new subsidized Stafford loans doubled from 3.4 percent to 6.8 percent, adding roughly $2,600 to students’ education costs.
Lawmakers from both parties called the increase senseless but differed on how they thought the lower rates should be restored.
The Senate was likely to vote early next week on the measure.
“We should get it done as quickly as possible,” Senate Majority Leader Harry Reid said.
Democrats had urged a one- or two-year extension of the current rates, while lawmakers plan to do a complete rewrite of the Higher Education Act in the fall to address the larger issue of college costs. Reid said he would allow members of his caucus one more attempt at the tactic but urged his colleagues to back the long-term proposal.
For his part, Harkin said he could scrap the whole bill when he takes up the Higher Education Act. As a condition for his support, he would order a Government Accountability Office review of all federal student lending programs and recommendations on how to improve them.