As of July 1, undergraduate students across the nation will pay twice as much for their new subsidized Stafford loans. The previous interest rate of 3.4 percent jumped to 6.8 percent due to lawmakers’ failure to reach a bipartisan agreement.
The higher interest rate will not affect the roughly $1 trillion in existing student debt. Congress’ Joint Economic Committee estimated the increase will cost the average undergraduate an additional $2,600.
According to Sally Mullen, director of SIUE’s Financial Aid department, 4,962 SIUE students used subsidized loans last year and she is optimistic that lawmakers will have those students’ best interests in mind when they reconvene.
“The university is confident that Congress can reverse the decision and retroactively lower the rates,” Mullen said. “And our students won’t be impacted.”
According to a statement from the National Association of Student Financial Aid Administrators, the interest rate hike could impact an estimated 8 million students each year.
“We are disappointed that lawmakers were unable to find a bipartisan solution that would bring down interest rates for all federal student loan borrowers,” the NASFAA stated, “despite the fact that the Obama administration and members of Congress have proposed similar solutions that would bring federal student loan interests down and align them with financial markets going forward.”
Geography graduate student Kenshin Hitengoku, of Edwardsville, said that it is just a part of going to school.
“Students don’t have the leverage to combat rising interest rates. If you’re going to go to school you’re probably going to need a loan,” Hitengoku said. “I don’t really think about it. It is just a fact of life.”
Both Mullen and the NASFAA are anticipating a retroactive change to the law in order to give relief to students preparing for the fall semester.
“Congress could move to retroactively change the interest rate on subsidized Stafford loans back to 3.4 percent after their August recess, but by the end of the August recess, a large portion of loans will have already been disbursed,” the NASFAA stated.
Freshman engineering major Daniel Halleran, of Waltonville, said he would consider leaving college for a time to avoid the loans.
“With the job market the way it is, it is only going to take longer to pay loans off,” Halleran said. “At this point, I would rather drop out a semester and work than pick up a new loan.”
According to the NASFAA’s statement, the recess for the July 4 holiday could stall any hopes of a policy reversal.
“Chances are, by that time, we have lost momentum for any legislative changes,” the NASFAA stated. “Pending any future action by lawmakers, NASFAA is telling our members to advise students that interest rates on new loans are going up.”
Senior computer science major Grant Denby, of Edwardsville, said he is focused on his schoolwork for now, not the interest rates on his loans.
“Once I graduate, I’ll start looking at that,” Denby said. “It would not affect me going to college. I would still go either way.”
The Stafford loans come subsidized or unsubsidized. The subsidized loans are only available to students who show a financial need.
The government pays the interest on the subsidized loans as long as the student is enrolled in school and they are subjected to yearly and lifetime limits. The yearly limits depend on the student’s year and the total limit is $23,000.
The unsubsidized loans, which have a current interest rate already set at 6.8 percent, are not limited to low-income students, and the government does not pay the interest while students are attending school.
As it stands, both Democrats and Republicans have similar long-term proposals that would tie the student loan rate to the U.S. treasury rate. The major difference between the two parties is the Democrats would like to fix the rate over a 10-year period, while the Republican plan calls for the rate to change from year to year.
These plans call for changes to all federally-offered student loan programs.
“Under both of these proposals, parents, graduate students and most undergraduate federal student loan borrowers would see significant decreases in loan costs at least for the next several years,” the NASFAA stated.
According to the NASFAA, President Obama’s plan calls for further protection for students by expanding the safety net “pay as you earn” program that keeps loan repayment amounts to 10 percent of borrower’s discretionary income and complete loan forgiveness after 20 years.
Sophomore engineering major Jacob Wright, of Kincaid, said he would like to see lawmakers get something done.
“I don’t feel the students should have to pay because they [lawmakers] can’t come to an agreement,” Wright said.
The NASFAA’s statement urged Congress to find a solution that benefits without affecting other areas of education.
“It’s well past time for lawmakers to implement a long-term student loan interest rate solution that doesn’t come at the cost of other student aid programs and provides predictability, sustainability and brings loan costs for all borrowers into alignment with market rates,” the NASFAA stated.