Student loan rates double without Congress’ action

Posted Monday, Jul. 01, 2013  comments  Print Reprints

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Unless Congress votes to lower interest rates on student loans, going to college is about to get a lot more expensive.

Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, went from 3.4 percent interest to 6.8 percent interest on Monday. Congress’ Joint Economic Committee estimated the cost passed to students would be about $2,600.

“It will really affect me once it doubles,” said Julian Askew, a political science major at the University of Texas at Arlington. He estimates he could face about $10,000 to $15,000 in loan debt when he graduates.

“I want to start paying it off as soon as I can,” Askew said.

Askew — and millions of others who use federal student loans to pay for their education — has some time before he 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.

Students only borrow money for one year at a time. Loans taken before Monday are not affected by the rate hike.

“It's a very significant issue,” said Paul Goebel, senior director of the University of North Texas Student Money Management Center. “For freshmen and sophomores, it's more of an abstract. For exiting students, they will be dealing with repayment within six months time.”

David Ximenez, associate vice chancellor for enrollment services at Tarrant County College, said the average TCC borrower accumulates about $4,672 in debt from federal loans. For them, over a two-year period, the loan payments would go from an estimated $762.88 at 3.4 percent to $1,779 at 6.8 percent, Ximenez said.

Ximenez said that is a substantial hit to personal student pocketbooks. He urged college students to exhaust grants and scholarships before borrowing.

“They should have a plan when they go to school and complete their degree and certificate as soon as possible,” Ximenez said.

Both political parties tried to blame the other for the hike and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country.

“The federal loan program is burying them in debt. With the doubling of the interest rate, Congress is pushing student borrowers to their limit,” said Michael Russo, federal program director with consumer advocate U.S. PIRG.

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 hike 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.

Even when lawmakers return, there’s no guarantee there will be the votes to restore the lower rates.

“When we pass a deadline and there are not immediate effects, the sense of urgency that accompanies a deadline evaporates and that is what I’m afraid will happen here,” Hartle said.

Staff writer Diane Smith contributed to this report, which includes information from The Associated Press.

Diane Smith, 817-390-7675

Twitter: @dianestar

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