The bittersweet taste of compromise on student loans

The debate over a student loans deal may have an end in sight, but that doesn’t mean it should be over.

On Wednesday the Senate passed a bipartisan compromise by a vote of 81 to 18 that pegs student loan rates to the financial markets. The White House will most likely approve the bill, as will the House considering they passed a very similar version of it earlier this year. “This compromise is a major victory for our nation’s students,” President Obama said in a statement. “It meets the key principles I laid out from the start: it locks in low rates next year, and it doesn’t overcharge students to pay down the deficit.”

But student advocates are not so sure. Matthew Segal of OurTime.org told msnbc: “This is the unfortunate side to deal making that nothing’s perfect and there’s a bittersweet taste in the mouths of many student advocates happy in the short term but nervous about the long term elements.”

Segal praised legislators for lowering rates for the next couple of years, but fears that it places unfair burden on the coming generations of students. While rates will go back down to the pre-compromise rate of 3.4% (assuming the plan passes), they will continue to rise yearly as the economy improves and the Fed changes its interest policies. Thus, students going to college five years from now will be faced with higher rates than those students applying for colleges and loans now. The happenstance of birth year could become a financial burden.

Instead, Segal wants to ensure that a sustainable solution is put in place, one that is “fair and equal to all future students as opposed to just lucky interest rates based on what year you were born.” And while this plan is likely to become law, with slight differences between the House and Senate plans to be hammered out in committee, Segal is not confident that once passed the issue will be revisited to ensure low rates for all. The Senate deal does place caps on student loans (8.25% for undergrads, 9.5% for grad school students, and 10.5% for PLUS) as a way to ensure that rates do not rise indefinitely, as well as maintains a fixed rate for the duration of the loan.

While these stipulations were enough for many Democrats to support the bill, some like Sen. Elizabeth Warren, are skeptical of the plan in that it places an undue burden on America’s youth despite the $200 billion it would generate over 10 years. Something else to take into consideration is that this new system of loans could drive students back into the private market, seeking lower rates from banks when the U.S. economy improves, thus driving federal rates up. Segal expressed concern that this bill may benefit banks more than it will the students.

“I’m not incredibly confident that Congress will revisit an issue where they just made a long term deal on,” Segal said. And from his conversations with Washington higher ups, he confidently said that should this deal make its way to the president’s desk it will become law. “We’ve been at the meetings, they’re definitely going to sign it.”