After months of uncertainty and partisan wrangling, President Barack Obama on Friday signed a student loan agreement that will retroactively cut interest rates for millions of students.
The new law ties student loan interest rates to the market and sets the rate for the term of the loan. But as the economy improves, students may see interest rates rise above current levels as rates can change from year to year. For the next school year, undergraduates can take out federally subsidized Stafford loans at an interest rate of 3.86%, while graduate and PLUS loans will be offered at 5.41% and 6 , 41%, respectively.
The law also guarantees a cap on loan interest rates, ensuring that undergraduate rates can never exceed 8.25%, while graduate loans are capped at 9.5% and PLUS loans have a limit of 10.5%.
When Congress didn’t take action before the July 1 deadline, interest rates doubled on undergraduate Stafford loans from 3.4% to 6.8%. Meanwhile, graduate loans were set at 6.8 percent and PLUS loans were to be offered at 7.9 percent.
Lawmakers struggled for months to reach a compromise, with several different measures failing to garner majority support between the two chambers. But the Bipartisan Student Loan Certainty Act of 2013, as it’s called, quickly gained support and was passed by both the Senate and the House within weeks before being sent to Obama for final approval.
“We can finally put behind us the annual game of Congress playing politics with student loan interest rates at the expense of students planning their futures,” said Sen. Lamar Alexander, R-Tenn.
Representative John Kline, R-Minn., Who chairs the House Education and Workforce Committee, said he was happy the bill has become law and the compromise marks a “big day … for all Americans.”
“Seeing this bipartisan proposal become law reminds us of what can be achieved through hard work, compromise and faith in the legislative process,” Kline said in a released statement. “I look forward to building on this success as we work towards other common goals. “