Senator John Thune

The days of summer are slowly fading. While there is still time before heading back to school, many college students and their families have been keeping a watchful eye for news coming out of Washington about what student loan interest rates will look like for the coming school year. On July 1, 2013, Federal Subsidized Stafford Loans returned from the temporary rate of 3.4 percent to 6.8 percent.

The return to higher rates was part of legislation Congress passed in 2007, which provided a temporary, phased-in reduction of interest rates from 6.8 percent to 3.4 percent for Federal Subsidized Stafford Loans. This reduced interest rate was set to return to its fixed rate of 6.8 percent after July of 2012. However, last year, Congress enacted a one-year extension of the 3.4 percent rate. That extension expired on June 30, 2013. The recent rate change to 6.8 percent set many students and parents on edge about the cost of financing education.

Unfortunately, while students were left wondering how they would shoulder the burden of higher interest rates, public disagreement between the president and Senate Democrats left legislation to provide relief to students at a standstill in the Senate. Thankfully, the Senate was able to reach a bipartisan agreement that will provide a sustainable, market-based solution that ensures access and affordability for all students, including students with subsidized and unsubsidized loans. Previous Democrat proposals ignored the problem of high interest rates for other types of federal education loans and would have only addressed interest rates for 40 percent of student loan borrowers. This bipartisan proposal passed by the Senate reduces interest rates for all students.

The Senate bill would allow rates to float with the U.S. Treasury 10-year borrowing rates, plus an add-on for costs associated with defaults, collections, deferments, forgiveness, and delinquency. This allows students to benefit from the current low interest rate environment while better protecting taxpayers from unnecessarily subsidizing lower rates, saving both students and taxpayers billions of dollars. The resulting interest rates for loans taken out this year, after July 1, 2013, would be 3.86 percent for subsidized and unsubsidized loans for undergraduate students, 5.41 percent on unsubsidized loans for graduate students, and 6.41 percent on PLUS loans for parents and graduate students. These rates would apply retroactively to newly issued loans taken out after July 1, 2013.

The costs of attending college can create challenging and stressful situations for some families, but providing certainty about interest rates can help ease the burden. I am pleased that the Senate was able to reach a bipartisan, permanent market-based solution that lowers interest rates for all students.