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Deal Reduces Rates On Student Loans

Washington — Student borrowers will see interest rates reduced to levels near those that expired last month under a deal announced by lawmakers Thursday, potentially ending a battle over college expenses that had divided Democrats and threatened to leave students with sharply higher costs.

The legislation offered by a bipartisan group of senators largely follows the approach initially outlined by the Obama administration, which would base student loan rates on the 10-year Treasury note rate.

Under the deal, each loan would carry a fixed rate. According to estimates provided by the bill’s authors, the rate for all undergraduate student loans would be 3.86 percent this year. The rates at which loans would be offered in subsequent years would adjust with the bond market. They are forecast to reach 7.25 percent by 2018 as interest rates go up with an improving economy. The plan would cap the rate at 8.25 percent on undergraduate loans to protect against increases beyond those forecast.

The new rates would be slightly higher on loans taken out by graduate students and parents. All rates will be retroactive to July 1, when the old fixed rate of 3.4 percent expired.

The Senate could vote on the plan early next week. Speaker John Boehner, R-Ohio, indicated that approval in the House could follow shortly after.

“While this isn’t the agreement any of us would have written — and many would like to see something quite different — I believe we have come a long way in reaching common ground on a very difficult and challenging topic,” Sen. Richard J. Durbin, D-Ill., said at a news conference attended by the measure’s bipartisan sponsors.