Democratic lawmakers and students plan to tussle with Congress this week in order to prevent a interest rate increase on the Stafford federal student loan. The rate will double from 3.4 percent to 6.8 percent on July 1.
Government subsidized Stafford loans are a vital source of financing for low- and middle-income students; nearly half of college students graduate with subsidized Stafford loan debt. A subsidized loan means the government will cover the interest payment on the loan while the student is still in school.
A possible rate increase bodes especially ill for Florida’s college students, who see their tuition costs rise about 15 percent a year while funding such as the Bright Futures scholarship dwindles. The possible rate increase is not retroactive and will not affect loans issued in the past.
Mark Kantrowitz, publisher of finaid.org, pointed out in a San Francisco Chronicle report that it is “not surprising the 3.4 percent rate expired in an election year.” The current legislation keeping the interest rate down has only a four-year lifespan. It was passed by a Democrat-controlled Congress in 2007.
Hopefully, the issue over the rate increase won’t turn into political battle on the Hill. Republicans should support keeping the interest rate low since taxpayers are ultimately the ones covering the subsidized interest payments. Fighting back against the legislation’s timely expiration should make for an easy win for Democrats in an election year.
President Barack Obama and Congress should also work together to come up with a plan to urge states to keep the costs of college down, as opposed to simply expanding access to loans issued by banks. As college grows more and more expensive – the estimated cost of attending UCF is more than $20,000 per year for in-state students – students must incur compounding student loan debt.
Subsidized Stafford loans can be a make-or-break source of funds for many students while in school, but after graduation day the interest rate becomes the borrowers responsibility. This can be very troubling for students who find an inhospitable job market. It would be best to keep the rate as low as possible without encouraging students to take on excessive debt.
A rise on the Stafford loan interest rate would hurt millions of students and the taxpayers who foot the bill. The only institution that would profit is Wall Street, and big banks that pay extremely low interest rates when they borrow money shouldn’t profit so heavily off of students who need access to higher education.