With backing from Minnesota U.S. Sens. Amy Klobuchar and Al Franken, the Senate passed bill that would lower interest rates on subsidized federal student loan from 6.8 percent to 3.9 percent for millions of undergraduate students, then tie the interest rates to market rates.
Interest rates on student loans doubled to 6.8 percent on July 1 after Senate Democrats and Republicans were unable to reach a deal.
But the compromise proposal passed Wednesday will lower rates for students come this fall.
Along with the lower rates for undergraduates, graduates students would borrow at 5.4 percent, and parents would have access to loans at 6.4 percent.
The compromise could provide relief for students through 2015, but then interest rates are expected to rise, according to Congressional Budget Office estimates.
As part of the compromise, Democrats also secured a rate cap for students and parents. Undergraduates would have loan rates capped at 8.25 percent, graduate students would not pay rates higher than 9.5 percent, and parents' rates would not exceed 10.5 percent. According to congressional estimates, rates would not reach those limits before 2023.
The bill will now head to the U.S. House, where swift approval is anticipated. The Senate compromise closely resembles a bill that House Republicans, led by U.S. Rep. John Kline, passed this spring.
"This is a victory for students and taxpayers, and I look forward to the bill's swift passage," Kline said in a statement.
But before the final vote, Klobuchar and Franken supported a pair of failed amendments that could have gutted the compromise.
The first amendment would have capped the rates for undergraduates and graduate students at 6.8 percent and parents' rates at 7.9 percent. The other amendment would have sunset the compromise bill in two years, before interest rates are expected to rise.
Along with Democratic Sen. Patty Murray of Washington, Franken also pushed an amendment that would redirect any profits made through the bill to the federal Pell Grant program, which aids low-income students. Top Senate Democrats did not allow a vote on his amendment.
Congressional Budget Office research indicates that bill would trim the federal deficit by $715 million by 2023.