With no agreement reached in Washington, the interest rates for federally subsidized Stafford loans have doubled to 6.8% starting this week. This is bad news for college students who rely on friendly interest rates in a tough economy to ease the burden of paying for college.
According to Phyllis Furman of the New York Daily News, more than 7 million students have outstanding Stafford loans, and with the interest rate hike they can all expect their total repayment to go up by thousands of dollars. A report by the Institute for College Access & Success puts the the number at $4,000 for students who max out their Stafford loans and pay them back over 10 years.
For weeks, Congressional Democrats have been anticipating that the standoff over student loan interest rates would be a political boon. In college student newspaper advertisements, on social media platforms and in town hall meetings, Democratic lawmakers cast themselves as the saviors of low, subsidized lending rates, battling Republicans intent on subjecting college loans to the whims of the financial markets. They banked on Republicans caving and extending the fixed, 3.4 percent rate for at least a year, just as they did a year ago when a similar deadline loomed.
In the end, the student loan problem, like many pieces of legislation in the past two years, ended up with three solutions: one from the Senate, one from the House and one from President Barack Obama – and no consensus. When the President left on his trip to Africa last week, it was clear that a last minute agreement to stave off the hike was unlikely.
Still, not all is lost. According to Jonathan Weisman of The New York Times, thanks to the fact that most students don’t sign their loan documents until August, lawmakers still have a month to either agree on a temporary retroactive rate freeze or come up with a long-term solution on student loans.
Although they have missed the original deadline, legislators could still mitigate most of the damage to the students if some kind of agreement is reached before next month.
Senators Tom Harkin of Iowa and Jack Reed of Rhode Island, both Democrats, will rush new legislation to the Senate on Thursday to freeze the 3.4-percent rate for one year while lawmakers try to reach a long-term agreement in a broader higher education law. But even the bill’s authors acknowledge it almost certainly will not be able to get a vote before Congress leaves for a weeklong July Fourth break.
Instead, the legislation would make the fixed rate retroactive to July 1. Since most university students do not sign loan documents until early August, “we have a little wiggle room, but not a lot,” said a Senate Democratic aide involved in the drafting.
Meanwhile, Furman offers families a helping hand in figuring out how to deal with increased financial obligations in case the interest rate bump is not reversed. Among the suggestions she offers is choosing a less expensive school, considering a two-year instead of a four-year college, and beginning to save money for tuition as early as possible.