Due to Congressional inaction before the July 4 recess, subsidized Stafford student loans are set to double their interest rates, from 3.4 percent to 6.8 percent. These loans account for nearly one-quarter of all federal borrowing, according to the Huffington Post. While politicians argue over funding and students resign themselves to an increase in student debt, some optimists still believe that the rate can be reversed to the 3.4 percent level once Congress returns.
“It’s just another thing to add on; it sure doesn’t help me,” noted one University of Iowa student, who expects to graduate with some $60,000 in debt, according to the Huffington Post. She is not alone. Today, and projecting into the future, that student debt has surpassed credit card debt in the United States.
Panic not yet set in
The American Council on Education advises that the only bright spot for students at the moment is that most students do not take out loans for college until 10 days before the term starts. This buys them some time for Congress to take action, although after the results of Sequestration and the lack of a budget deal, perhaps they shouldn’t get their hopes up.
Said President Justin Draeger of the National Association of Student Financial Aid Administrators, “We’re telling members to advise students that interest rates are going up.” While both Democrats and Republicans had pledged to maintain the 3.4 percent interest rate last year at election time, things are less certain today.
Congressional inaction and arguments
Just why the pessimism? Perhaps, it stems in part from the fact that Congress was aware of the looming July deadline for a whole year before it arrived. That lack of urgency has led to one missed opportunity and could foreshadow more. The lack of outcry on the part of parents and students may mean that the issue is sidelined permanently.
Arguments prior to the recent interest rate hike centered around whether to tie the interest rate to market forces, a suggestion coming from the White House. However, not all Congressional members were happy with that suggestion, as a soaring interest rate could leave students even worse off. Thus, a cap of the rate was suggested.
For their part, Senate Democrats attempted to enact a two-year extension of the 3.4 percent interest rate, while a procedural impediment prevented that action. The Republicans, whose measure mirrored the President’s, also failed. White House officials suggested that Democrats work to find any compromise that would prevent the doubling of rates for students, but in the end, the Democratic Chairman of the Senate Education Panel, Tom Harkin (D-Iowa) called the process a “non-starter” and urged a one-year extension when the Congress returns after July 4th vacation.
While the White House predicted that a deal would be reached before students reach campus for the Fall Semester (and any subsidized Stafford loans taken out in July 2013 made retroactive to the 3.4 percent rate), no one can be certain this will actually happen.