Next year’s loans could cost students an extra $5,000
Taking out loans next year may cost students an additional $5,000 as interest rates are scheduled to double, according to reports by the Associated Press and Huffington Post. Starting July 1, interest rates for subsidized Stafford loans are scheduled to rise from the current 3.4 percent to 6.8 percent if Congress does not take action. @@checked@@
The story is not an unfamiliar one. Last year, the same increase was scheduled to take place but was postponed another year due in part to pressure from the 2012 presidential and congressional elections. Currently, however, there is no money set aside in either the Democrats’ or Republicans’ congressional budget proposal for maintaining current student loan rates.
Students with outstanding subsidized loans will not be affected by the change unless they take out a new subsidized loan nor are the rates on unsubsidized or commercial loans likely to change. The interest rate increases only apply to students taking out new subsidized loans. For these students, however, it could be unlikely the rate increase will be avoided as it was in 2012.
“What is definitely clear, this time around, there doesn’t seem to be as much outcry,” Justin Draeger, president of the National Association of Student Financial Aid Administrators, told the Associated Press. “We’re advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent.” @@name checked@@
The increase is scheduled amid rising student debt. According to the Huffington Post, student loan debt tops $1 trillion and two-thirds of students are graduating with debt over $25,000. The average University of Oregon graduate’s debt in 2011 was $22,736, with 53 percent of graduates leaving the UO with some debt, according to The Project On Student Debt. For students with debt, the interest rates will determine how much they pay back monthly. The scheduled increase will make a significant difference in what that amount is.
Rep. Karen Bass (D-Calif.)@@checked@@ introduced a proposal last week to permanently cap student loan interest rates at the current 3.4 percent. While Senate Democrats say they want to keep rates at the current level, their budget plan has not outlined a way to do so, as they have not set aside the $6 billion annual cost. In 2007, Congress decreased the 6 percent rate and continued to decrease interest rates to the current 3.4 percent.
Today, House Republicans’ budget plan outlines a proposal to increase interest rates back to pre-2008 rates.
On April 10, President Obama is expected to release his budget proposal and add another perspective to the debate.