Reid Shoots Down Plan to Stop Student Loan Rates Doubling

A last-minute, bipartisan proposal to keep student-loan interest rates from doubling next week was shot down Wednesday by Senate Majority Leader Harry Reid and other Democrats, a decision blasted by moderate Democrat Sen. Joe Manchin as "unfathomable."

Manchin, along with three GOP senators and one independent, had unveiled what they called a breakthrough compromise bill to solve an impasse that would see rates shoot up as from Monday, reports The New York Times.

Their plan called for tying interest rates for federal Stafford loans to the 10-year U.S. Treasury bond rate, plus an additional 1.85 percentage points.

Manchin was joined in the proposal by independent Maine Sen. Angus King, who caucuses with the Democrats, and Republicans Tom Coburn of Oklahoma, Richard Burr of North Carolina, and Lamar Alexander of Tennessee.

Most Democrats protested that the plan had no hard cap on interest rates, which would protect against market fluctuations. They also objected to interest rates earning the government $1 billion over the next decade.

Reid spokesman Adam Jentleson told ABC News, "There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families instead of closing tax loopholes for the wealthiest Americans and big corporations.

"Democrats continue to work in good faith to reach a compromise, but Republicans refuse to give on this critical point," Jentleson said.

Rates of federal Stafford loans currently are fixed at 3.4. percent, but the interest doubles on July 1 unless Congress acts.

"I hope that people start looking at truly compromising and working on something that fixes it," Manchin told the Times. "You’ve got rates going up to 6.8 percent. That’s unfathomable, and it doesn’t have to happen."

Meanwhile, Democratic Sens. Tom Harkin of Iowa and Jack Reed of Rhode Island were planning to rush new legislation to the Senate on Thursday to freeze the 3.4 percent rate for another year while lawmakers continue trying to reach a long-term agreement, the Times reported.

That legislation likely won't get a vote before Congress leaves for its week-long Fourth of July break. But that won't matter if Congress votes on the measure by early August, when most students begin signing new student loans, because it would make the 3.4 percent rate retroactive to July 1.

In May, the Republican-controlled House passed its own student loan bill that fixes the interest rate to the 10-year Treasury note, plus 2.5 percent.

The House plan would apply to federally subsidized and unsubsidized Stafford loans as well as to Plus loans, which are available to graduate students and to parents of undergraduates.