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House Clears Student Loan Bill
Bill, Which Links Interest Rates on Loans to Market Rates, Is Sent to Obama
By JOSH MITCHELL

WASHINGTON—The House voted overwhelmingly Wednesday to clear a bill that links interest rates on federal student loans to a market-based rate, ending a monthslong debate and sending the bill to the White House.

The House passed the bill by a vote of 392 to 31. The Senate passed the bill last week by an 81-18 vote. President Barack Obama, who lobbied for the legislation despite resistance from some liberal Democrats, is expected to sign it.

The legislation would tie the interest rate on federal student loans to the government's borrowing costs—specifically, the yield on the 10-year Treasury note. Stafford loans for undergraduates—the government's most widely used student-loan program—would be set about two percentage points more than the Treasury yield.

Student loans for graduate students and their parents would be set slightly higher than rates for undergraduates.

Passage of the bill resolves an acrimonious dispute in Congress stemming from a measure that expired July 1, which allowed the rate on some new student loans to double to 6.8%. Members from both parties had vowed to prevent the rate increase but disagreed over how to set rates over the long term.

The bill passed Wednesday would affect only new loans, not existing student loans. Under the measure, undergraduates who take out loans for the coming school year would pay an interest rate of 3.86%, based on Treasury yields from this spring. That rate would remain fixed for the life of the loan.

However, the rate on loans taken out next year and beyond would likely be higher, since Treasury yields are projected to rise as the economy strengthens. Congressional researchers project that next year's rate on new loans for undergraduates would be 4.62%, and 7.25% for loans taken out in 2018. The bill caps the rate at 8.25%.

Those rates would replace the 6.8% rate currently set in law for Stafford loans.

Some liberal Democratic senators opposed the measure because they feared rates would rise too high under the bill in coming years.

Supporters of the bill said that by tying student-loan interest rates to the government's borrowing costs, taxpayers would be protected from losses on the loans and lawmakers would no longer have to battle over student-loan rates.

"It's about time that bipartisanship on this issue won the day in Washington," Rep. Virginia Foxx of North Carolina, a senior Republican on the House Education Committee, said moments before the vote on the House floor.