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WASHINGTON - The House of Representatives passed a bipartisan bill Wednesday to roll back a July 1 jump in student loan interest rates and reduce the borrowing costs for millions of students.
The bill, passed by the Senate last week, now goes to President Obama for his signature.
The legislation links student loan interest rates to the financial markets, offering lower rates for most students now but higher ones down the line if the economy improves as forecast.
House Speaker John Bohner, R-Ohio, said, "Going forward, the whims of Washington politicians won't dictate student loan interest rates, meaning more certainty and more opportunities for students to take advantage of lower rates."
Democratic leader Nancy Pelosi, D-Calif., said, "Today, the House acted in a bipartisan way to keep college within reach for America's best and brightest."
The bill will lower interest rates for subsidized Stafford loans in the short term. These rates doubled to 6.8% on July 1 because Congress couldn't come to terms on a deal before that deadline. Under the bill, undergraduates will be able to borrow at 3.9% for this school year, graduate students at 5.4% and parents at 6.4%.
The rates would be locked in for that year's loan, but each year's loan could be more expensive than the previous year's. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.
The bill establishes a formula for student loan rates based on the interest rate on 10-year Treasury notes, so the rates will fluctuate with the market. Under current law, Congress sets interest rates on subsidized student loans.
Democrats had feared that a market-based rate could become unmanagable for families as interest rates increase. A deal in the Senate set a cap on interest rates, and most Democrats supported the compromise.
Interest rates would not top 8.25% for undergraduates. Graduate students would not pay rates higher than 9.5%, and parents' rates would top out at 10.5%.
The legislation provided a rare area of accord between the Obama administration and congressional Republicans. The president included a similar proposal in his budget plan, which House Republicans rolled into legislation earlier this year.
Or, as Boehner described it Wedensday, "Democrats who run Washington did the right thing by finally agreeing to these long-term reforms, which first passed the House in May as part of the Republicans' jobs plan."
Source: USA Today