Looming Interest Rate Increase for Federal College Loans Would Cost Students Thousands
If nothing is done in Congress by the end of June, interest rates on federally subsidized Stafford student loans will double, from 3.4% to 6.8%. The general public, in particular students, have only now become aware to this looming time bomb that would raise financial obligations by thousands of dollars over the life of the loan. CREDO has rolled out some engagement on the issue. And on the same day she turned heads by arguing that the President needed to evolve and endorse marriage equality already, Massachusetts Senate candidate Elizabeth Warren spoke out about the looming increase in a press release:
“Interest rates on student loans will double this summer if Congress fails to act,” said Warren. “That interest rate increase is one more financial hit on middle class students and families who are already under pressure. It’s not right and Congress must stop it.
“Young people all around the Commonwealth – from North Adams and Worcester to Charlestown and Quincy – are doing everything right,” Warren said. “They work hard, they play by the rules, they recognize the importance of education and invest so they can get a better job and earn a brighter future. They should not suddenly face higher interest rates, and they should not be left drowning in debt because they are trying to get an education.”
The Huffington Post cornered some Congressional leaders to ask them whether they will work to stop this. Unfortunately, the Ryan budget already targets students for some of its deficit reduction schemes:
The Ryan budget moves Pell Grants from mandatory to discretionary spending, making future cuts and tweaks to the program possible. The bill also assumes both a repeal of the expanded Income-Based Repayment program, which allows college graduates to pay back debt in proportion with their salaries, and the doubling of Stafford-loan interest rates […]
On Wednesday, Rep. Karen Bass (D-Calif.) introduced an amendment to the Ryan budget that would prevent the interest rate from doubling — plugging the gap with deductions for corporate taxes and private jets, and tax cuts for millionaires, a measure unlikely to get through committee.
Democratic senators have been vague about their intentions. “Senator Reid thinks that middle-class families and hard-working students cannot afford to see the interest rates on their student loans increase on July 1, and he will work with Chairman Harkin and others to prevent this from happening,” a Democratic senate aide wrote in an email in response to the Credo petition. Reid’s office is expected to advance a message bill in a few months.
These don’t look like promising avenues. Message bills aren’t supposed to pass, and a millionaire’s surtax, however small, has already been beaten back by Congressional Republicans over the past few years. If the rate increase is stopped at all, it probably gets stopped by restricting Pell grant eligibility or taking something else from the education sphere. Perhaps the raised awareness will help to make this a priority in Washington, but I’m not seeing it yet.
As a result, students will sink further and further into debt peonage. As I noted yesterday, the Consumer Financial Protection Bureau found in a study that student debt already totals over $1 trillion. Doubling the interest rates on Stafford Loans would increase that debt overnight. This has knock-on effects for housing, employment and the overall economy. A college graduate trapped in rising debt simply cannot make the same choices in the early portion of their lives.