A bipartisan group of Senate negotiators has drafted a tentative deal to restore lower interest rates for student borrowers, a Senate aide close to the group tells Fox News.
The deal, which will likely be announced Thursday, is the latest in a string of attempts to undo a rate hike that doubled the interest rates for subsidized Stafford loans on July 1. It was unclear how much the deal would cost or whether the Senate would agree to it, after at least one previous deal was scuttled due to its high cost.
The deal would offer students lower interest rates through the 2015 academic year but then rates were expected to climb above where they were when students left campus this spring.
The interest rates would be linked to the financial markets but Democrats won a protection for students that rates would never climb higher than 8.25 percent for undergraduate students. Graduate students would not pay rates higher than 9.5 percent and parents' rates would top out at 10.5 percent.
Lawmakers from both parties have called the rate hike senseless but differed on how to restore the lower rates.
The House has already passed student loan legislation that also links interest rates to the 10-year Treasury note. The differences between the Senate and House versions are expected to be resolved before students return to campus this fall.
Few students have borrowed for fall classes. Students typically do not take out loans until just before they return to campus and Congress had until they left for the August recess to restore the lower rates.
The tentative deal was estimated to reduce the deficit by $715 million over the next decade.
Undergraduates last year borrowed at 3.4 percent or 6.8 percent rates, depending on their financial need. Graduate students had access to federal loans at 6.8 percent and parents borrowed at 7.9 percent.
Under the tentative deal, all undergraduates this fall would borrow at 3.85 percent interest rates. Graduate students would have access to loans at 5.4 percent and parents would be able to borrow at 6.4 percent.
However, if the economy improves as congressional economists predict, rates would climb in coming years. The proposed compromise reached Wednesday evening would limit how high those rates could go, although all were higher than the current fixed levels.
Lawmakers from both parties met with President Obama and Vice President Biden on Tuesday at the White House. An outline of an agreement seemed to be taking shape Tuesday, with follow-up meetings Wednesday in Democratic Sen. Dick Durbin of Illinois' office yielding a final agreement.
Democratic Sen. Joe Manchin of West Virginia and Republican Sen. Richard Burr of North Carolina were the main negotiators, with Republican Sen. Lamar Alexander of Tennessee and Durbin filling the role of mediators.
The Associated Press contributed to this report