Student loan interest rates double without Congress's action
Tuesday , July 02, 2013 - 12:03 AM
Many Utah college students face the difficult task of getting their student loans in order before returning to school for fall term, and a recent stalling in Congress could potentially keep the interest rates doubled from what they were in fall 2012.
As of Monday, the interest rate on subsidized Stafford loans went from 3.4 percent to 6.8 percent after the Senate failed to reach an agreement on a bill that had been passed by the House.
Even though the issue could be resolved after Congress recommences following the Fourth of July holiday, the blow could be devastating for the estimated 7 million students who depend on Stafford loans, which account for about one-fourth of all direct federal borrowing.
“It was very close to what the Obama budget had been suggesting,” said Congressman Rob Bishop, R-Utah.
“The idea of having the federal government responsible for student loans is a lousy idea in the first place. What this has shown is that the federal government is not designed to do this kind of micromanagement in the first place.”
Bishop’s view reflects the divide between, and among, the Republicans and Democrats, which contributed to the interest rates’ doubling.
President Barack Obama originally proposed a budget that would include a measure linking student loan interest rates with financial markets, but fellow Democrats believed there was no proof that interest rates would not skyrocket if the economy improves.
Republicans have generally favored a long-term solution that, they say, has similarities to Obama’s budget proposal.
A bill passed through the House in May, but it did not pass through the Senate. The Democrat-led Senate tried to obtain a two-year extension on the 3.4 percent rule, but that was not reached before the Fourth of July holiday period began.
Congress is set to come back Monday, and the full session will resume the following day. Bishop is hopeful a long-term solution will be reached.
“My assumption is that there will be a solution. The hope I have is that the Committee bill will lower them (interest rates) for another year. The biggest problem right now is that kids who have these loans don’t know what the ultimate rate will be,” he said.
Even though students who have used the Stafford loan before or have already signed up for it will not be affected, anyone who applies for it from fall term onward will be subject to the 6.8 percent interest rate — unless, of course, Congress reaches an agreement before it breaks again for the month of August.
If not, Congress’s Joint Economic Committee has put the estimated extra cost to students at $2,600 on average.
Even though Utah’s median household income, which the Census American Community Survey put at $55,869 in 2011, is higher than the national average of just more than $50,000, it has been steadily declining since 2007, and the threat of higher student loan payments could pose unfavorable consequences for Utah graduates just entering the job market.
Congress will be back in full session July 9 and is expected to soon begin looking over the options for lowering the interest rates.