Sen. Lamar Alexander applauded the signing of a bill by President Barack Obama Friday, which will roll back the interest rate on federally backed student loans and tie new rates to U.S. Treasury yields.

Alexander, the ranking Republican on the Senate committee that oversees education policy, was a co-sponsor of a bipartisan compromise bill, which overwhelmingly cleared both House and Senate chambers. The legislation is retroactive and applies to all student loans taken out after July 1 of this year—the day rates doubled because Congress was not able to overcome infighting on a solution. 

Under the new plan, a standard rate on a loan will be tied to the current rate on the Treasury's 10-year rate on bonds. Although rates will currently drop because of the new structure, rates could potentially rise depending on Treasury rates in future years—which would allow rates to be much higher. 

Alexander said in a news release that the new plan would be "cheaper" and "simpler" for students, as well as put an end to the rate on loans being used as a political football for lawmakers in negotiations.

"This permanent, market-based plan makes loans cheaper, simpler and more certain for the 11 million students nationwide—including more than 200,000 in Tennessee—heading to college this fall," Alexander said. "We can finally put behind us the annual game of Congress playing politics with student loan interest rates at the expense of students planning their futures."

Depending on the type of loan, an additional percentage will be tacked onto the Treasury's 10-year rate on bonds. The current 10-year rate is 1.81 percent, meaning that an additional 2.05 percent added for an undergraduate student loan would make the rate on a current loan 3.86 percent. 

Rates on loans would be permanent over the lifetime of the loan, but could change for students who take the loans out at a time when the Treasury rate is different. The additional percentages are to cover the costs associated with defaults, collections, deferments and forgiveness, supporters say. 

For graduate Stafford loans, the rate would be calculated using the 10-year Treasury rate plus 3.6 percentage points, with a cap on rates at 9.5 percent. Rates on PLUS loans to parents and graduate students will be the 10-year rate plus 4.6 percent, with a cap on the rates at 10.5 percent