Update: The U.S. Senate passed the compromise Wednesday with a 81-18 vote. More than a dozen Democrats voted against the deal, which will lower interest rates in the short term, but may result in climbing interest costs later on.
President Barack Obama expressed his support for the compromise in a statement.
“It meets the key principles I laid out from the start,” he said. “It locks in low rates next year, and it doesn’t overcharge students to pay down the deficit.”
A heavy financial burden may be lifted off of many college students, but the relief may only be temporary.
The U.S. Senate is slated to vote Wednesday on a bipartisan compromise that would lower this fall’s student loan interest rates, but possibly make for higher rates later on if the economy picks up as predicted.
The deal, which would tie interest rates to the financial markets, would allow undergraduates to borrow at a 3.9 percent interest rate this fall. Graduate students could borrow at a rate of 5.4 percent, while parents could do so at 6.4 percent, according to a report by Philip Elliott of The Associated Press.
The White House estimates the deal would save an undergraduate student about $1,500 in interest costs.
“Rates on every single new college loan will come down this school year, offering relief to nearly 11 million borrowers,” Education Secretary Arne Duncan said Tuesday.
The vote comes after interest rates on Stafford loans doubled from 3.4 percent to 6.8 percent on July 1. Lawmakers were long aware of the impending hike, but were unable to strike a deal in time to avoid it.
The current deal, negotiated by a bipartisan team including Democratic Sen. Joe Manchin of West Virginia and Republican Sens. Lamar Alexander of Tennessee and Richard Burr of North Carolina, could benefit students for now. Despite this, congressional estimates project interest rates to rise after the 2015 school year to an amount even higher than what they were in the spring, according to the report published by The Associated Press.
In the compromise, Democrats were able to achieve a capping of long-term rates to 8.25 percent for undergraduate students, 9.5 percent for graduate students and 10.5 percent for parents, still higher than the current ones. The Congressional Budget Office estimates that rates would not achieve those limits in the next 10 years.
The deal has garnered criticism from liberals such as Democratic Sen. Elizabeth Warren of Massachusetts, who argued Wednesday on the Senate floor that it would force students to endure more financial strain.
“Students—all students—will end up paying far higher interest rates on their loans than they do right now,” she said.
According to estimates by the Congressional Budget Office, the compromise in its current form would decrease the deficit by $715 million over the next 10 years. In that period, student loans are expected to total $1.4 trillion, according to The Associated Press’ report.