(CBS) After the Democratic-led Senate on Thursday announced it had come to an agreement on interest rates on federal student loans, leaders hailed the deal as long-overdue. Progressive activists are grumbling the deal, which closely resembles the House Republican bill, would leave students worse off than doing nothing.
Jim Dean, chairman of Democracy for America, called the deal a "craven attempt to pit today's students against future students."
"Even worse, this raw deal is built on the backwards notion that students are merely Washington cash cows waiting for the slaughter rather than national assets to be built up and invested in," he said in a statement.
The deal would set undergraduate interest rates at 3.85 percent for another year. The borrowing rate would be 5.4 percent rate for graduate students and 6.4 percent for parents. After that, however, the rates would rise with the market. Undergraduate interest rates for the next 10 years would be capped at 8.25 percent, the graduate interest rate cap would be set to 9.5 percent, while the parent borrowing rate would be capped at 10.5 percent.
Liberals have adamantly opposed tying rates to the market, and even though the compromise sets caps for how high the rates can rise, activists think Democrats effectively caved to Republicans on the matter.
"The Senate proposal on student loans treats students like an ATM," Stephanie Taylor, co-founder of the Progressive Change Campaign Committee (PCCC) said in a statement, pointing out that if Congress simply did nothing, the interest rates would remain lower than the 10-year caps.
Interest rates on federal loans currently stand at 6.8 percent, after Congress earlier this year failed to extend the lower rate of 3.4 percent. Both Democrats and Republicans say they are in favor of lower rates, but up to this point, they have disagreed on whether or not to tie the interest rates to the market. Democrats earlier this month were pushing a bill to restore the 3.4 percent rate for another year, to give lawmakers more time to find a long-term solution, but the Senate rejected it.
Pressure has been mounting for Congress to fix the matter, which could affect seven million Americans taking out student loans this year. According to CBS News analyst Mellody Hobson, a higher rate could have a noticeable impact on the economy. Debt takes a toll in various ways; for instance, someone with student loan debt is 36 percent less likely to own a home.
Senate leaders hesitantly put their support behind it Thursday.
"The legislation as has been presented to me isn't everything I want, but it's a work of a number of Democratic and Republican senators working long, long hours," Senate Majority Leader Harry Reid, D-Nev., said on the Senate floor Thursday. He noted that the senators who negotiated the deal met with President Obama Tuesday night for about 90 minutes.
"We have to get this done as soon as possible," Reid said. The Senate is expected to vote on the measure early next week.
Sen. Tom Harkin, D-Iowa -- a key player in the negotiations -- expressed his dissatisfaction with the measure but suggested there were few other options left. The Senate could change student loan rates again later, he said.
Sen. Jack Reed, D-R.I., however, said he's opposing the bill.
"The clear impact of the legislation that is being proposed is that it will increase the cost of education for students," he said on the Senate floor. "We need to ensure our students have an opportunity to earn a degree without mortgaging their future."
Another key Democrat -- Sen. Elizabeth Warren, D-Mass., has yet to say whether she'll support the effort. Progressives have largely fallen behind a bill that Warren introduced to reduce student loan interest rates to 0.75 percent, the same level big banks receive from the Federal Reserve.
She and other Democrats have railed against more conservative plans, which use the money earned from the interest rates to fill government coffers. According to the Congressional Budget Office, the U.S. will pocket a record $51 billion in profits this year off new and current federal student loans. On Wednesday, Warren called those profits "morally wrong" and "obscene."
With the Senate set to vote on the new compromise early next week, activist groups are mobilizing opposition. Democracy for America is asking its 1 million supporters to share its loan calculator, which shows much interest a student would have to pay under the new plan, compared with what they would pay under other proposals.
Democracy for America and other groups like MoveOn.org and PCCC have also been organizing support for Warren's legislation. More than 600,000 people have signed a petition in support of the measure, while more than 13,000 have called their senators about it. PCCC, meanwhile, as rounded up more than 1,200 university professors to come out in support of Warren's bill.