The Senate passed with a 74-26 vote Tuesday to pass the debt deal after it zipped through the GOP-controlled House on Monday.
The passage of the deal will raise the debt ceiling by $2.1 trillion and avoid a loan default for the first time in the nation's history. Obama praised the bill moments after it passed the Senate saying that the measure 'is the first step that as a nation we live within our means' but later said that the American economy 'didn't need Washington to come along with a manufactured crisis.'
The federal government could still see a credit downgrade although Fitch reported that for now the U.S has a AAA credit rating. The S&P 500 and Moody's are still undecided.
Details of the debt deal
The agreement reached Sunday calls for savings of $2.4 T over the next decade and raise the debt ceiling to at least the end of 2012 and creates a special committee to recommend long-term entitlement and tax reforms.
The final agreement comes in two phases:
Phase 1: Cut spending by $917 B and raise debt ceiling by $900 B
Phase 2: A special joint-Congress committee to recommend further deficit reductions. The panel's recommendations would be due by November 23 and a vote would take place by December 23. If the recommendations are enacted, the ceiling will go up by $1.5 T otherwise the ceiling will still be raised by $1.2 T but mandatory cuts across the board will be triggered.
Higher education took a hit as a result of this deal. Congress would scrap subsidized federal loans for graduate students beginning July 1, 2012. Congress will also eliminate a credit for those who make 12 consecutive on-time loan repayments.
For taxpayers, the savings will total $21.6 billion over the next 10 years. Students who qualify for the maximum amount of subsidized loans could tack thousands into the cost of school.
The idea for these cuts came from the GOP-controlled House. however Senate Democratic Majority Leader Harry Reid proposed of talks last week. Of the $22 billion saved, $17 billion will go towards funding Pell Grants. The remainder will go towards paying down debt.
Another cut Congress is targeting would be a credit students get for the government to process their loans. In other words, a student who wishes to take out a $5,000 loan for college would pay the federal government a process fee of $25. According to the Congressional Budget Office, this would cost students $3.6 billion over the next decade.
According to a recent survey, 17% of Americans believe Congress are behaving like responsible adults while 77% believe they are acting like spoiled children.
Congress will be in recess until early September.