New Stafford & PLUS Loan Interest Rate Compromise

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July 18, 2013 · by mlivolsi · Spark Notes

Prepared by: Wes Huffman (

Today, a bipartisan group of Senators met with President Obama in the Oval Office to discuss proposals to modify interest rates on federal student loans. Senate negotiators working on the issue are scheduled to continue these discussions later today.

At the White House meeting, a new plan was put forward.  Like the compromise proposals before it, this plan features a fixed, variable interest rate based off of the 10-Year Treasury rate plus a spread.   Politico offers the latest details on the proposed deal.

[The latest proposal] would peg rates on new loans to 10-year Treasury notes plus 2.05 percent for undergraduates with a cap of 8.25 percent. Graduates would pay the 10-year Treasury rate plus 3.6 percent with a cap of 9.5 percent and 4.6 percent for PLUS loans with a cap of 10.5 percent.

As always, the CBO score associated with the plan is of the highest importance.  Reports indicate CBO estimates this latest plan to produce $715 million in savings.  With Sen. Elizabeth Warren (D-MA), Chairman Harkin (D-IA) and others referring to government “profits” and calling any budgetary savings produced from a compromise as coming “off the backs of students,” even this relatively small amount of savings is problematic for a deal.

The degree of progress made at the White House meeting was in the eye of the beholder.  Senate Majority Whip Dick Durbin (D-IL) and Sen. Richard Burr (R-NC) described it as a productive meeting, while Chairman Harkin said, “We were close, but now we are getting further apart.”

A link to an updated version of our matrix of the “market-based” federal loan interest rate proposals is provided below.  We will keep you informed on the latest developments.

7.17.13 Federal Loan Proposals