Congress was unable to reach a compromise on student loan rates by the July 1 deadline, putting more expensive interest rates into effect. Congress left last week for a holiday with hopes of resuming the issue upon their return.
The failure to reach a compromise means that interest rates on Subsidized Stafford Loans doubled Monday, from 3.4 percent to 6.8 percent. The rate increase will only affect new Subsidized Stafford Loans, so existing Subsidized Stafford Loans will stay at 3.4 percent interest.
Subsidized Stafford Loans are awarded to students on the basis of financial need and are in high demand because they don’t accumulate interest while students are in college. These loans are not to be confused with Unsubsidized Stafford Loans, which are not based on financial need and have faced interest rates of 6.8 percent since 2007.
The College Board found that 10.4 million students and 35 percent of all undergraduates had Stafford Loans (both subsidized and unsubsidized) in 2011-12, a 95 percent increase from 2001-02. During that time, the average amount students borrowed increased as well. Students at California schools incur significant debt from student loans, though students at UC’s and CSU’s take on far less debt than the national average for public universities, $16,648 and 18,879 in average loan debt in 2010-11 respectively as compared to $29,0589 in loan debt nationally.
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Today’s increase could be reversed before students return for school in the fall if Congress reaches a compromise which restores the old rate. The Senate pledged to revisit the issue in July, Senator Tom Harkin (D-IA) who chairs the Education Committee said he hopes to extend the 3.4 percent interest rate for another year. But that extension would have a large price tag, last year, Congress also chose to keep rates at 3.4 percent, a decision which cost $6 billion.
However, if lawmakers don’t act to reverse today’s rate changes, students will face even more hurdles in paying for higher education. AP News reported that Congress’ Joint Economic Committee estimates the new 6.8 percent interest rate will cost each student taking out Subsidized Stafford Loans about $2,600.
Navigating Student Loans
Here are a few helpful tools which can help you make sense of college payments and loan options:
- The Federal Student Aid loan Repayment Estimator
- The U.S. Department of Education recently updated its College Affordability and Transparency Lists which can be found here at the College Affordability and Transparency Center website.
- You’ll find even more helpful resources for answering your student loan questions on the U.S. Department of education blog. One blog post warns, “Different loan types can have very different terms and conditions, so be sure you know what types of loans you’ve got.”
- CNBC Article: What New Student Loan Rates Mean For You?
