by Ben Sheffler
Interest rates on new subsidized Federal Direct Stafford student loans increased yesterday from 3.4 percent to 6.8 percent because Congress couldn’t agree on a plan before the deadline, affecting approximately 700 students every semester at Pensacola State College.
And Congress is on a week-long recess for the Fourth of July.
There was no late night vote to save students thousands of dollars, as there was on New Year’s Eve to save the country from falling over the fiscal cliff.
Any deal reached in the near future can be made retroactive, but as of July 1, the increase is in effect.
While Congress plays with the pocketbooks of students, the more than 7 million around the country who are expected to rely on subsidized Stafford loans for the coming academic year need serious action to happen.
A report from the Joint Economic Committee said this doubling of interest rates would add $4,500 to the cost of a four year degree.
The federal Office of Management and Budget similarly reported that if a student borrows $27,000 to pay for four years of college, they would owe an extra $4,000 or more over the life of their loan.
Student debt has already been rising dramatically since 2007, from $550 billion to about $1 trillion in the first quarter this year, the Joint Economic Committee reports.
According to The Institute for College Access & Success, 51 percent of Florida students graduating in 2011 from a four-year or above institution do so with debt. The average debt a student has in Florida is $23,100.
There have been proposals from Democrats and Republicans in both the House and Senate, but no deal has been reached.
Senate Democratic leaders have pushed for a one-year extension of the current rate, while a bipartisan group of Senators have proposed the “Bipartisan Student Loan Certainty Act,” which would tie loan rates to the 10-year Treasury note with an additional 1.85 percent to undergraduate Stafford loans. The plan would fix the interest rate for the life of the loan and, according to the Congressional Budget Office, cut the deficit by $1 billion over 10 years.
This proposal is modeled after a plan in President Obama’s 2013 budget that also sets interest rates to the 10-year Treasury note but adds a higher, 2.5 percent rate to loans.
The 10-year Treasury note is currently hovering around 2.1 percent, but it is expected to rise in the coming years.
The President said he’ll veto a separate plan passed by the Republican-controlled House that would keep rates from doubling now but allow them to increase down the road.
“I’m glad the House is paying attention to it, but they didn’t do it in the right way,” said Obama.
The House’s plan would not lock in interest rates until students graduate, when rates could be as high as the 8.5 percent their plan caps them at.
Before heading to recess, Democrats said they will call the one-year extension plan to a vote on July 10.
Last year, Congress agreed on a one-year extension of the low rates that had been in effect for four years, originally enacted by a Democratic-controlled Congress.
The looming increase of interest rates and indecision by Congress puts college even further out of reach for some young people. And that is just not the right thing to do in this country now.
America has been falling behind in education for decades, and it’s time that trend turns around. College needs to be as affordable as possible, while providing a quality education, so the potential future leaders of this country aren’t left out in the cold due to financial uncertainty.