College students taking out new loans for the fall term will see interest rates twice what they were in the spring — unless Congress fulfills its pledge to restore lower rates when it returns after the July Fourth holiday.
Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, went from 3.4 percent interest to 6.8 percent interest Monday. Congress’ Joint Economic Committee estimated the cost passed to students would be about $2,600.
“In the grand scheme of all the loans that I already have, I suppose it’s not out of control,” said Angie Platt, a 20-year-old University of Iowa student who expects to graduate with at least $60,000 in debt.
“It’s just another thing to add on. It doesn’t help me; that’s for sure,” the Lake-ville, Minn., native added.
Efforts to keep interest rates from doubling on new Stafford loans fell apart last week amid partisan wrangling in the Senate. Democratic senators and the White House both predicted that a deal would be reached in Congress to bring the rates down again before students return to campus.
In response to the inaction of Congress, U.S. Rep. Tim Ryan of Niles, D-13th, said, “Rather than taking steps to make college more affordable for a generation that is already faced with inflated college expenses and a competitive job market, Republicans have instead chosen to add to the already high expenses faced by our nation’s college students by allowing the interest rate to double to 6.8 percent.”
If an agreement remains elusive, students could find themselves saddled with higher interest rates this year than last.
“It’s kind of surprising; that’s a big jump,” said Rebecca Ehlers, an Iowa State University senior majoring in math.
A $1,000 subsidized Stafford loan is part of her financial-aid package, and she said she’s reconsidering how she pays for school.
“I may work more or ask my parents for money rather than going through all that,” said Ehlers, 21.
She — and millions of others who use federal student loans to pay for their education — has some time before she has to make that decision. But not much.
“The only silver lining is that relatively few borrowers take out student loans in July and early August. You really can’t take out student loans more than 10 days before the term starts,” said Terry Hartle, a top official with colleges’ lobbying operation at the American Council on Education.
But that is little consolation for students looking at unexpected costs waiting for them on graduation day if Congress doesn’t take action before it breaks again for the month of August.
Students borrow money for only one school year at a time. Subsidized Stafford loans taken before Monday are not affected by the rate hike, nor are federal PLUS, Perkins or unsubsidized Stafford loans slated for the coming year.
“We’re telling members to advise students that interest rates are going up,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.
He said he doesn’t anticipate that the rate increase will prevent students from attending classes in the fall. The effects, he said, won’t be felt until after students graduate, when they have to start paying back the loans.
“This doesn’t decrease the dollars available to pay for college. It increases the cost of the loan,” he said.
Both political parties tried to blame the other for the hike, and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit- card debt in this country.
Lawmakers knew for a full year the July 1 deadline was coming but were unable to strike a deal to dodge that increase. During last year’s presidential race, both parties pledged to extend the 3.4 percent interest rates for another year to avoid angering young voters.