U.S. senators passed a bipartisan student loan act Wednesday that would cut current student loan interest rates in half this year.
But, the rates resulting from the bill, which awaits approval from the House and then President Barack Obama, would likely rise in several years.
Cesar Pacheco, a first-year undeclared student, said he thinks Congress should try to come up with an alternative plan because he will most likely have to take out loans in the future to cover his undergraduate and graduate degrees.
“My parents are farm workers. They’re going to help me out, but it’s not going to be a whole lot,” Pacheco said.
The Bipartisan Student Loan Certainty Act of 2013 was passed following weeks of deliberation after rates doubled on July 1 because Congress initially failed to take action against the scheduled increase.
Instead of having Congress members arbitrarily set student loan interest rates at a specific number, as they currently do, federal loan interest rates will be based on the 10-year treasury rate, or the rate at which the government borrows money, according to a Congressional Budget Office report.
If the bill becomes law, interest rates for undergraduate subsidized and unsubsidized loans taken out after July 1 would be reduced from the current 6.8 percent to 3.86 percent for this year. Graduate unsubsidized loans and parent PLUS loans would have interest rates of about 5.4 percent and about 6.4 percent, respectively.
Robert Reid, a press secretary for Senator Richard Burr (R-N.C.), who helped create the bill, said Burr did not believe it was Congress’ job to arbitrarily set student loan rates because it would not be fair to students or taxpayers.
“The Senator feels that we need to find a current solution that’s market-based, that’s fair for everyone, (and) that lowers rates for all students and borrowers out there,” Reid said.
In order to protect students from interest rates that are too high, the bill has assigned caps for each type of loan. Under the bill, undergraduate loan rates will not surpass 8.25 percent. Graduate student loan rates would be capped at 9.5 percent, and parent PLUS loan rates would be capped at 10.5 percent.
Though the bill has provided caps to quell rates in the future, interest rates are expected to increase in several years.
Gary Orfield, a UCLA professor of political science said he thinks the rates would increase substantially under the plan proposed by the Senate.
Interest rates would likely continue to remain low for the next year or so, Orfield said. Once the economic downturn is over, however, interest rates are expected to increase as a result of a decrease in government spending.
“Eventually, when the economy recovers we’re going to have to pay real interest rates again,” Orfield said. “The rates will have to go up somewhat. I think that they’re proposing they go up too much and actually make a profit for the government.”
While the interest rates for students loans are set to be reformed by Congress, it is unclear whether the potential changes will benefit students in the future.
“We’re pleased that students (would) have lower interest rates for the next few years,” said Chris Harrington, a UC spokesman. “In addition, we’re pleased that the legislation is retroactive to July 1, but we are concerned that in the out years, these rates will rise.”
The measure was passed by an 81-18 vote in the Senate, but must also be approved by the House of Representatives before becoming law. The bill may have to be sent back to the Senate before Obama can sign it into law if the House does not pass the Senate’s version of the bill.