WASHINGTON — President Barack Obama signed into law Friday a measure restoring lower interest rates for student loans, pledging the hard-fought compromise would be just the first step in a broader, concerted fight to rein in the costs of a college education.
Encircled by lawmakers from both parties in the Oval Office, Obama praised Democrats and Republicans alike for agreeing – finally – on what he called a sensible, reasonable approach to student loans even as he cautioned that “our job is not done.”
“Feels good signing bills. I haven’t done this in a while,” Obama said, alluding to the difficulty he’s faced getting Congress, particularly the Republican-controlled House, to approve his legislative priorities, such as gun control and budget deals.
“Hint, hint,” he added to laughter.
But even the feel-good moment at the White House came with reminders of the bitter partisanship that still makes future deals incredibly difficult for Obama. House Speaker John Boehner, R-Ohio, called the law part of the “Republican jobs plan,” while House Democratic leader Nancy Pelosi of California said it “stands in stark contrast to the House Republicans’ plan to saddle families with billions more in student debt.”
The rare compromise emerged only after a frenzy of summer negotiations, with lawmakers at odds over how loan rates should be set in the future even while they agreed that a doubling of rates – it kicked in July 1 when Congress failed to act before the deadline – would be bad policy and bad news for students.
The legislation links student loan interest rates to the financial markets. It offers lower rates this fall because the government can borrow money cheaply at this time. If the economy improves in the coming years as expected, it will become more costly for the government to borrow money, and that cost would be passed on to students.
About 11 million students this year are expected to have lower interest rates, saving the average undergraduate $1,500 on interest charges on this year’s loans.
Boehner called it “a good day” and a fine example of what Washington can accomplish when petty partisanship is put aside.
“With the stroke of a pen, we’ve now officially taken the politics out of student loans,” he said.
Obama cast the student loan deal as just the first of many measures the U.S. needs to make college affordable as a higher-tech economy makes advanced training and education a necessity for many workers.
“The cost of college remains extraordinarily high. It’s out of reach for a lot of folks,” Obama said, calling it a burden as well on families who have to balance other priorities, like buying a home, with helping fund their children’s educations. “We’ve got to do something about it.”
To that end, Obama said he’d be looking to the same coalition of political forces that came together on student loans as he pursues further steps.
White House officials have said Obama plans to lay out a broad and aggressive strategy in the coming months to tackle the spiraling cost of a college education. Even as they passed the bill weeks earlier, congressional officials were already talking about a broader approach to curbing fast-climbing costs and perhaps scrapping the deal when they take up a rewrite of the Higher Education Act this fall.
Rates on new subsidized Stafford loans doubled to 6.8 percent July 1 when Congress couldn’t agree on a way to keep them at the previous 3.4 percent rate. Without congressional and presidential action, rates would have stayed at 6.8 percent.
The compromise is a good deal for all students through the 2015 academic year. After that, interest rates are expected to climb above where they were when students left campus in the spring, if congressional estimates prove correct for 10-year Treasury notes.
Undergraduates this fall will borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last.
Interest rates will not top 8.25 percent for undergraduates. Graduate students will not pay rates higher than 9.5 percent, and parents’ rates would top out at 10.5 percent. Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.
In all, some 18 million loans will be covered by the legislation, totaling about $106 billion this fall. The Congressional Budget Office estimated the bill would reduce the deficit by $715 million over the next decade.