YAKIMA, Wash. — Some passers-by have asked Hugo Baeza why someone so young is out playing guitar on the corner of South First Street and Nob Hill Boulevard, a popular place for panhandlers. The reason tends to surprise most.

“This woman, she thought I was homeless or a druggie or something,” the 20-year-old student said recently. “I’m like, ‘No, I’m doing this for college. I need the extra money.’” She was like, ‘Oh, that’s good. I didn’t want to support your habit.’ No, I don’t have a habit.”

Last week, Baeza made around $60 playing out on the streets — money to offset some expenses of attending Yakima Valley Community College. He ultimately plans to transfer Washington State University in Pullman to continue pursuing his dream of becoming a civil engineer.

For now, he plays four to five times a week at that busy intersection along with working at his dad’s body shop, staving off taking out student loans at the community college. So far, he’s avoided dealing with student loan interest rates, an issue heavy on other students’ minds and made more stressful after those rates doubled on July 1 from 3.4 to 6.8 percent.

While elected officials spent recent weeks debating interest rates in the nation’s capital, students and school officials here in the Yakima Valley and in Ellensburg ponder what will happen next. While many will reap the benefits of lower interest rates for the next few years, the long-term outlook on student loans remains, as one put it, “nerve wracking.”

The U.S. Senate and House came to a compromise in July that ties student loan interest rates to market rate increases. It easily passed the Senate last week and was approved by a wide margin in the House on Wednesday. It now goes to the president.

Under the measure, interest rates for undergraduate students would fall from their current rate of 6.8 percent to 3.86 percent, based on current Treasury bond rates. For graduate students, the rates would fall from 6.8 percent to 5.41 percent. PLUS loans, which can be taken out by both graduate students and parents paying for their child’s education, could drop to 6.41 percent from the current rate of 7.9 percent.

The interest rate changes are retroactive to July 1. But those rates are only effective for loans taken out in 2013. And while rates could remain low for a few years, some believe that because the loans are now tied to the market rates, an improvement in the economy and any resulting inflation could push rates up significantly.

Under the new legislation, the cost of an undergraduate loan could theoretically climb as high as 8.25 percent, the cap set on these loans under the legislation. The same could also happen for graduate and PLUS borrowing. Both rates could climb to caps of 9.5 and 10.5 percent respectively — all much higher than current rates.

Baeza said he likes that there is finally some compromise in Congress, especially if he plans on taking out loans when he goes to WSU, which he said could cost a up to $40,000 per year.

“As long as they’re trying to lower it and do the best they can, I’m OK with it,” he said. “As long as they try.”

Hugo’s older brother, Daniel, called the student loan debate a “never-ending cycle.”

Whatever happens with the interest rates, the 22-year-old YVCC student said it’s the price required to get an education. He plans on signing up for the nursing program offered at the college through WSU and anticipates taking out his first loans soon.

“Later on, it will pay off,” said the older brother. “I’m not scared; I think I can manage.”

At Toppenish’s Heritage University, reaction to the government’s proposal was a mixed. Financial Aid Director Oscar Verduzco called these new rates “more consistent” and “more transparent — something that wasn’t there before for student borrowers.”

He said chatter and questions from students about the rates has been minimal this summer, but he expects inquiries to pick up once fall semester begins at the private university.

University spokesperson David Wise called it “better than the current situation we’re in” by reducing the interest rate for the immediate future. However, the idea of connecting these interest rates to 10-year Treasury bonds was something he said he would not have done.

“I think long term we would have liked something that’s tied in with a fixed rate,” he said.

Piedad Alcala, a 25-year-old medical biology student at Heritage, has taken out around $20,000 in student loans and plans to take more out as she prepares to sign up for the school’s new physician assistant program next year.

Now entering her fourth year at Heritage, the Yakima resident said she worries just how high rates could climb under this new measure.

“If they raise (rates) to a certain amount, that would be fine,” said Alcala. “But if they’re not fixed, that would be a problem.”

“I will certainly take advantage” of the lower rates, said Heritage student Collete Flinkfelt, who already has about $16,000 in student loan debt and still has two more years in her nursing program. The problem she sees is for future students, who may face uncertainty again as to where rates will be.

“People will need to explore all options,” said Flinkfelt, wondering if more students may need to balance full-time jobs and school, choose a more financially stable major over one they may prefer or put off school altogether. Flinkfelt herself put off school for years to raise a family and is now on her way to earning a degree in her 50s.

Up at Central Washington University, school officials said news out of the nation’s capital was welcome relief. Central had a full-time enrollment of about 9,800 students for the 2012-13 school year.

“We’d like loan rates to stay as low as possible in order to make education as affordable as possible,” said university spokesperson Linda Schactler. She said the school will keep an eye on loan rates for the foreseeable future as CWU believes “affordability and predictability” are the keys for a successful loan program.

For some students there, borrowing never happened. Sarah Gorak, who recently graduated from CWU without taking loans, said it was a relief not to have debt. As a music major, she said many students have to take more than four years to complete the program, a burden on some of her friends’ financial statuses.

“Because of the nature of the degree, they get stuck and have to pay more,” said the Renton native. With the uncertainty of what will come out of the loan debate in Washington, D.C., Gorak said she could not be happier graduating debt-free.

“That’s why I’m glad to be out of school,” she said.