WASHINGTON—Massachusetts Senators Elizabeth Warren and Edward Markey are opposing a bipartisan compromise aimed at preventing interest rates from doubling on subsidized federal student loans, saying it unfairly allows the government to reap profits from students.
“The U.S. loans to big banks at less than 1 percent interest, and here we turn around and demand profits on the back of our kids. That’s wrong. This is not the business the U.S. government should be in,” Warren said in an interview Thursday. “We need to invest in our kids, not make it harder for them to get an education.”
The government would gain about $184 billion over 10 years from the program, according to the Congressional Budget Office.
Interest rates doubled to 6.8 percent after Congress, amid partisan wrangling, missed a July 1 deadline to change it. The compromise would set the interest rate at 3.86 percent for the 9 million undergraduates expected to take out federal student loans this summer, and cap the rate for any future increases at 8.25 percent.
Warren referred to the deal as a “teaser rate student loan system,” and championed her own legislation to lend students money at the same discount rates granted to large banks. Warren’s proposal sought to set the rate at 0.75 percent for one year.
“We need to do more to make college affordable so that every student who dreams of higher education isn’t saddled with higher loan rates,” Markey said in a statement. “I will oppose plans that substantially increase the rates students pay now and in the future.”
The bipartisan group of senators that struck the deal include Joe Manchin, a West Virginia Democrat; Richard Burr, a North Carolina Republican; Angus King, a Maine independent; Tom Coburn, an Oklahoma Republican; Tom Carper, a Delaware Democrat; Tom Harkin, an Iowa Democrat; Lamar Alexander, a Tennessee Republican; and Dick Durbin, an Illinois Democrat. An earlier proposal by several in the group did not include a cap on rates, something many Democrats insisted upon.
Durbin, the majority whip, rose to speak on the Senate floor Thursday evening immediately after Warren railed against the bill and addressed her directly.
“Please, walking away from that just doesn’t make sense,” Durbin said, adding that he accepts Warren’s premise that “we can do better.” But, he said, “we don’t have the votes.” The compromise, he said, is better than doing nothing because it immediately reduces undergraduate interest rates on new loans from 6.8 percent to 3.86 percent.
“Walking away from this bipartisan approach is going to mean more debt for students, higher interest payments, and I don’t think that’s fair,” Durbin said.
A Senate stalemate was finally broken Thursday after weeks of negotiations. The compromise deal is expected to come up for a vote next week at the earliest, before many students head back to college next month. The deal would link the interest rates on all federal student loans to market rates, with different markups for undergraduate, graduate student and parent loans. The new rates would be retroactive to July 1.
Graduate students would pay a 5.41 percent interest, never to exceed 9.5 percent. PLUS loans to parents and graduate students would pay a 6.41 percent interest rate, to be capped at 10.5 percent.
Warren had company among other Senate liberals. Senator Bernie Sanders, a Vermont independent, said he would vote against the bill because voting in favor would amount to working “with Republicans to make college unaffordable.” He urged his colleagues not to “collapse on this issue” and instead, “take the fight to the American people.”
Sanders said he plans to propose an amendment that would sunset the bill in two years, before interest rates are expected to rise.
The Consumer Financial Protection Bureau, Warren’s brainchild, estimates that student loans guaranteed or held by the federal government have now crossed the $1 trillion mark—the second largest form of debt in this country, after mortgages.
Senator Jack Reed, a Rhode Island Democrat who had proposed extending the 3.4 percent interest rate for another year while the lawmakers come up with a long-term solution, also voiced his opposition to the deal on the Senate floor earlier Thursday.
“No deal is better than a bad deal,” he said, echoing what students and advocates have been saying in recent weeks. “We’re going to have some relief today, but it will be followed inevitably by students who will pay more and have a much larger burden to bear.”
Senator Mitch McConnell, the Republican leader, called out Democrats on Thursday for their earlier resistance to compromise.
“I am encouraged to see that Senate Democrats finally agreed to end their obstruction of student loan reform,” McConnell said in a statement. “This is an issue that should’ve been a bipartisan slam dunk.”Tracy Jan can be reached at firstname.lastname@example.org. Follow her on Twitter @GlobeTracyJan.