Student rate hike, not in our interest
Published: Tuesday, May 22, 2012
Updated: Tuesday, May 22, 2012 23:05
We urge Congress to pass an extension to the current 3.4 percent interest rate on all subsidized Stafford loans.
Unless Congress intervenes before July 1 of this year, subsidized Stafford loans are set to double to 6.8 percent.
Students who demonstrate financial need may qualify for subsidized Stafford loans.
The government defers payments and pays the interest on these loans while students are enrolled in college and for a six-month grace period after graduation.
The difference between a subsidized Stafford loan and an unsubsidized Stafford loan is that the unsubsidized loan is not based on a student’s financial need and interest is charged while the student is in school.
With the rising costs of attending college, the least Congress should do is to encourage students to continue their education by keeping student loan rates as low as possible.
In 2007, Congress acknowledged the issue of rising college debt when they lowered the rate on all federally subsidized Stafford loans by passing the College Cost Reduction and Access Act.
This act lowered the rate from 6.8 percent to the current 3.4 percent over a span of four academic years.
Both President Obama and presidential candidate Mitt Romney support extending the 3.4 student loan rate for one more year.
However, Democrats and Republicans disagree how to pay for this extension.
According to the Congressional Budget Office, extending the low loan rate would cost the government $6 billion.
To cover the $6 billion Republicans want to cut funding from the President’s heath initiative, whereas Democrats want to eliminate a tax break for corporate stockholders.
The White House estimates that the increase in student loan rates to 6.8 percent would cost students about $1,000, based on the average amount borrowed a year ($4,200) and the average time it takes to pay back the loan (12 years).
The increase to 6.8 percent would not affect any loans taken out prior to July 1, 2012, but it would affect the 7.4 million students who are planning to take out subsidized Stafford loans starting this fall.
The Education Department estimates that those 7.4 million students will borrow $31.6 billion in subsidized Stafford loans.
Student debt will officially reach an all time high of $1 trillion this year, as Americans now owe more on student loans than on credit cards or auto loans.
According to the Federal Reserve Bank of New York, credit card debt nationally is $704 billion and auto loan debt is $734 billion.
Knowledge comes at a cost, but doubling student loan rates will only increase the challenge of obtaining this knowledge.
Obtaining a college education should not be a lifelong financial burden, but if Congress allows loan rates to increase the additional debt students will incur could become just that.
Students should celebrate graduating college and not fear for their future obligation to pay back their loans.
The subsidized Stafford loans should continue to be offered at the 3.4 interest rate.
The risk of losing money on student loans is low, as students are not able to file bankruptcy on such loans, unless they can prove undue hardship.
Republicans and Democrats need to stop wasting time talking about how they do not want the student loan rates to increase and instead come together to work out a realistic plan for the nation’s students.