Student loan rates double without Congress’ action
Published: Monday, July 1, 2013 at 8:20 p.m.
Last Modified: Monday, July 1, 2013 at 8:20 p.m.
College students taking out new loans for the fall term will see interest rates twice what they were in the spring — unless Congress fulfills its pledge to restore lower rates when it returns after the July 4 holiday.
Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, increased Monday from 3.4 percent interest to 6.8 percent interest.
"This is the equivalent to a $936 tax on Florida families per loan each year," Gov. Rick Scott said, calling Congress irresponsible for going on recess without doing something to stop the loan rate from doubling.
"Florida's students and families now face higher education costs because Washington bureaucrats were unable to work together on behalf of America's students," Scott said. "Fewer students will now be able to attend college and get jobs that require degrees because Washington chose politics over our families."
Efforts to keep interest rates from doubling on new Stafford loans fell apart last week amid partisan wrangling in the Senate. Democratic senators and the White House both predicted that a deal would be reached in Congress to bring the rates down again before students return to campus.
But if an agreement remains elusive, students could find themselves saddled with higher interest rates this year than last.
"It's kind of surprising; that's a big jump," said Rebecca Ehlers, an Iowa State University senior majoring in math.
A $1,000 subsidized Stafford loan is part of her financial aid package and she said she's reconsidering how she pays for school.
"I may work more or ask my parents for money rather than going through all that," said Ehlers, 21.
She — and millions of others who use federal student loans to pay for their education — has some time before she has to make that decision. But not much.
"The only silver lining is that relatively few borrowers take out student loans in July and early August. You really can't take out student loans more than 10 days before the term starts," said Terry Hartle, a top official with colleges' lobbying operation at the American Council on Education.
But that is little consolation for students looking at unexpected costs waiting for them on graduation day if Congress doesn't take action before it breaks again for the month of August.
"I'm upset by it," said Kolton Gustafson, a George Washington University political science major heading into his senior year. "I wish there was a larger reaction to it."
"Many students are saying and thinking, ‘I'll pay it later,' " the Grand Junction, Colo., native added. "That's why you don't see more people fighting back."
University of Florida students graduating with bachelor's degrees already have seen an increase in their debt load over the past five years. The percentage of UF graduates with bachelor's degrees carrying debt grew from 37 percent to 41 percent from 2008-09 to 2011-12. The average student loan amount for families is $2,445 a year.
Students borrow money for one school year at a time. Subsidized Stafford loans taken before Monday are not affected by the rate increase, nor are federal PLUS, Perkins or unsubsidized Stafford loans slated for the coming year.
"We're telling members to advise students that interest rates are going up," said Justin Draeger, president of the National Association of Student Financial Aid Administrators.
Subsidized Stafford loans go to needier students and often are coupled with other types of lending.
He said he doesn't anticipate that the rate increase will prevent students from attending classes in the fall. The effects, he said, won't be felt until after students graduate, when they have to start paying back the loans.
"This doesn't decrease the dollars available to pay for college. It increases the cost of the loan," he said.
Both political parties tried to blame the other for the increase, and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country.
Lawmakers knew for a full year the July 1 deadline was coming but were unable to strike a deal to dodge that increase. During last year's presidential race, both parties pledged to extend the 3.4 percent interest rates for another year to avoid angering young voters.
But the looming increase lacked sufficient urgency this year, and Congress last week left town for the holiday without an agreement. Instead, the Democratic-led Senate pledged to revisit the issue as soon as July 10 and retroactively restore the rates for another year — into 2014, when a third of Senate seats and all House seats are up for election.
At the White House, a spokesman predicted a deal could be reached before students return to campus.
"We are confident they will get there and that the solution will include retroactive protection for students who borrow after July 1 so that their student loan rates don't double," Matt Lehrich said.
Staff writer Jeff Schweers and The Associated Press contributed to this report.