Student Loan Interest Rates
Set to Skyrocket for
7 Million Students & Counting
If Congressional action isn't taken, the interest rates on government subsidized student loans will double to 6.8 percent on July 1st of this year.
This change will affect one third of undergraduate students who are receiving Federal Direct Stafford Loans.
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The high interest rates aren't news to undergraduates who have unsubsidized loans. Those rates have been at 6.8 percent since 2007.
In order to understand the issue at hand, one must understand the types of loans being discussed. The House Republicans’ web site
defines the three types of loans available to students and their parents as:
• Subsidized Stafford Loans
– fixed rate loans available to undergraduates that are based on financial need.
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• Unsubsidized Stafford Loans
– fixed rate loans available to all undergraduates regardless of financial need.
• PLUS loans
– fixed rate loans for parents of dependent undergraduate students and graduate and professional degree students.
also note that “under current law, interest rates are now fixed at three different rates – subsidized Stafford loans are 3.4 percent, unsubsidized Stafford loans are 6.8 percent, and PLUS loans are 7.9 percent.”
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According to House Republicans
, “the student loan interest rate cliff was originally caused by Congressional Democrats
who made a promise during the 2006 campaign to cut all student loan interest rates in half as a way to make college ‘affordable and accessible to all.’”
“After gaining control of Congress in 2007, they realized their political promise was too expensive, so they championed legislation that would temporarily phase down interest rates on new subsidized Stafford loans to undergraduate students.”
Both sides of the government, republicans and democrats alike, agree that the student loan interest rates doubling would be wrong. What they don’t agree on, however, is how to fix the current situation.
The current proposed bill, HR 1911, proposes to prevent rates from doubling on some student loans by implementing a market-based means of setting the interest rates.
On the other hand, it would allow the rates to increase in the future by being reset annually, which is said to make college more expensive than it already is in the long term.
According to the House Democrats’ web site
, “by the time next year’s freshmen graduate and start repaying their loans in 2017, the interest rate on that loan taken out during their freshman year is projected to more than double beyond today’s current rate for subsidized Stafford loans.”
The legislation passed in the Republican-controlled House, but President Obama has vowed to veto the legislation, stating that it’s “the wrong approach” and that it “would not guarantee low rates” that students need.
In a statement issued by the White House, the market-based interest rates were negatively described in saying that, “a rate that continues to vary after the loan has already been taken out would create uncertainty and lessen transparency for students and their families who are making decisions about borrowing for college.”
The current interest rate is 3.4 percent and, starting the first of July, would double for more than seven million students.
For those struggling to pay for education, maintaining low rates are kind of a big deal. However, doubling rates is kind of a big deal, too.
According to a statement
issued by the White House, the “students who rely on these loans to finance post-secondary education should not be burdened with additional college debt as they seek to graduate, launch a career or a business, start a family, or buy a house.”
It seems as though every government leader has a different solution, further complicating the issue. They can’t agree on how to limit student rates in order to ensure that students aren't thrust into bankruptcy, should interest rates climb.
They also disagree on the “little extra” amount students should pay for the program, how to allow students to maintain or “lock-in” their rates and how any additional revenue earned through the program should be spent.
Unless the sides can come to a bi-partisan agreement, millions of students are going to get poorer. 6.8 percent poorer, to be exact.
At this point, a compromise seems unlikely.
While there are two sides to every story (both with valid points), undergraduate students receiving subsidized loans are caught in the middle of the issue and will be affected, no matter what outcome the government decides upon.
It’s imperative to remember that, ultimately, it’s the students that will be punished for a lack of compromise, not the leaders.
At this point, student loans are overwhelming, to say the least. In 2011, for example, an average student owed around $27,000 in student loans.
It seems as though the only thing leaders agree upon is that a long-term solution is what’s really necessary, not a short-term fix.
It’s not important which side you agree with or which side you believe to have the correct solution. What’s most important is the outcome of the situation and the more than seven million students trying to get an education.
These students, who qualify for need-based aid, will be the people actually affected by the decision, whatever it may be. Perhaps Congress should keep them in mind when butting heads instead of resolving the situation. After all, those students are
the future of our country.
What’s your take on the issue? Can you think of a solution to the problem that leaders might actually agree upon?