Now both houses of Congress have passed a compromise bill lowering a recent interest rate hike on student loans. Under the new legislation, which will now move to President Obama's desk, politicians will no longer be responsible for setting the rates.
AP Photo/Manuel Balce Ceneta
U.S. college students will likely pay a reduced interest rate of 3.86 percent on their student loans for the new school year, after lawmakers on Wednesday finally passed a compromise bill that would reverse a recent rate hike.
The House of Representatives voted 392-31 in support of a bipartisan deal to lower interest rates on millions of new federal student loans. The Senate passed the bill on July 24 and President Barack Obama is expected to sign it into law.
The action followed months of partisan bickering, with Democrats and Republicans blaming each other for a politically embarrassing delay that had the potential to cost students and their parents thousands of dollars.
The legislation replaces a system in which Congress fixed interest rates every year and substitutes it with a market-based mechanism tied to the government's cost of borrowing and capped to protect borrowers in the event of a severe spike in rates.
The legislation passed just two days before Congress recesses for five weeks, after several failed efforts in the House and Senate.
Interest rates on student loans automatically doubled on July 1 to 6.8 percent after Congress failed to meet the deadline to prevent the rate increase. Congress has since incorporated a retroactive fix that would keep borrowers of loans originated since July 1 when rates had doubled from paying the higher rate.
The measure passed Wednesday pegs interest rates on student loans to the 10-year Treasury note plus 2.05 percentage points for undergraduates, and plus 3.6 percentage points for graduate student loans.
The interest rate would roughly work out to 3.86 percent this year for undergraduates and 5.42 percent for graduates.