Some background: Student loan rates will double from 3.4 to 6.8 percent on July 1 if Congress doesn’t do anything to prevent it.
The House of Representatives in May passed a bill which pins rates to the market. In other words, the interest rates will fluctuate every year depending on the economy and could be much higher than the flat 6.8 percent.
Projected rates on federal Stafford loans could rise to 7.7 percent in 2023 under that proposal, according to the Congressional Budget Office.
The White House dislikes the fact that this bill doesn’t lock in low rates for students. In a news conference last week, the president said, “That’s not smart. It eliminates safeguards for lower income families. That’s not fair.”
Topics from HuffPost Live interview
Here are highlights from Tuesday night’s Google Hangout chat with The Huffington Post:
- Student loan interest rates will affect only the subsidized federal Stafford loans that are issued after July 1, 2013. Subsidized Stafford Loans are need-based loans available only to undergraduate students.
- Subsidized Stafford loans issued before July 1, 2013 have a locked in rate of 3.4 percent for the life of the loan.
- The cost of attending college has increased more than 400 percent since 1999. Doubling the interest rate will cost students an additional $1,000.
- In 2007, Congress passed a law that gradually decreased interest rates from the original 6.8 percent to 3.4 over a five year period. In 2012, Obama, the Republicans and Democrats issued a one-year extension on the 3.4 percent interest rate. The extension is up and Congress is having a hard time agreeing on how to resolve the issue.
Lawmakers are considering several plans to address the student loan interest rate issue and offered their opinions:
- President Obama wants loan interest rates to vary from year to year and be based on the yield on 10-year Treasury bonds. Interest rates, however, will be locked in for the life of the loan.
- Democrats want to extend the period of a 3.4-percent interest rate once more for an additional one or two years to give Congress a chance to resolve the federal student loans issue.
- Republicans don’t think extending the 3.4 percent rate will benefit the economy. Like the president’s plan, they suggest interest rates vary based on the market. Conversely, the rates would not be locked in over the life of the plan. They do, however, cap the interest rates on each loan.
Is College For Everyone?
Some people think it’s an elitist point of view that everyone should attend college. Personally, I don’t think everyone needs to go to college, but everyone should have an opportunity to attend without having financial issues preventing them.
Even if the student loan interest hike is put in effect, it shouldn’t discourage students from attending a two- or four-year institution. There are plenty of options available for additional student funding while in school and options to help pay off student loan debt after graduation.
The important thing is to be aware of the issues surrounding higher education and make sure you understand your financial situation and the short- and long-term effects it will have on you.
Struggling with paying off student debt? Find out how Debt.org can help.
Cecillia Barr is a graduate of the University of Central Florida. She blogs about her extensive knowledge on student loans in order to help others reduce their debt and live financially independent lives.