Schools prepare for student loan interest rates to double
Interest rates are set to double Monday for new subsidized Stafford student loans, a move that will potentially impact thousands of students in the Durham area.
U.S. senators Richard Burr (R-NC) and Kay Hagan (D-NC) both introduced new legislation this week to combat the sudden rate hike, but the plans didn’t reach a Senate vote before the July 4 recess.
The subsidized Stafford loans are given to students based on financial need, and the federal government pays the interest on the loan while the student is enrolled in college at least half-time and for a six-month grace period after the student stops attending school.
The set interest rate will double in a few days, from 3.4 to 6.8 percent. For each year Congress allows the rate to double, the average student with these loans will accrue an additional $1,000 in debt, according to the National Education Association.
Mary Kusler, director of government relations for the National Education Association, said larger priorities in the Senate stalled decision-making.
“It has been hard for them to turn their attention from immigration in order to deal with student loans,” Kusler said. “Now, unfortunately, they have left without coming to a unified decision.”
Congress is debating whether to link interest rates to the 10-year Treasury note, tying loan interest rates to market borrowing rates, or to extend the current rate of 3.4 percent for one year, which allows more time to discuss a long-term college affordability fix.
Legislation was introduced by a group of senators Thursday, to include Burr. Their Bipartisan Student Loan Certainty Act would tie all newly issued student loans for each academic year to the U.S. Treasury 10-year borrowing rate, plus 1.85 percent for subsidized and unsubsidized undergraduate Stafford student loans; plus 3.4 percent for graduate Stafford loans; and plus 4.4 percent for PLUS loans. Burr’s office stated that they will continue to push for the compromise once the Senate returns from recess.
The interest rate would be fixed over the life of the loan and the cap on interest rates for consolidated loans would remain at 8.25 percent, according to the plan.
But dissenters have argued that tying the student loan interest rate to the market may keep interest rates low now, but they could increase later.
Legislation introduced Friday by Hagan and others - the Keep Student Loans Affordable Act of 2013 - would fix the subsidized Stafford loan interest rate and extend it for one more year. Hagan’s office states that about 176,000 North Carolina students and their families will see interest rates double on their loans, and this solution would apply retroactively to students who took out Stafford loans on or after the July 1 deadline.
“It’s not worth rushing into a deal that is a bad deal for students, just to meet the deadline,” Kusler said about the head-butting in Congress.
Kusler said she works with high school teachers preparing students for college, parents who are preparing to send their children to college and students who are worried about the impact a rate hike will have on their wallets.
“This just isn’t about young people, this is about everybody, because so many of us in so many portions of our lives are touched by students getting ready to go to college,” she said. “Everyone’s coming at it from the right place, which is figuring out a way to afford a higher education. And I believe the debate right now is stalled on a very important point, by making sure whatever deal Congress comes to helps (students).”
Alison Rabil, Duke University’s financial aid director, said that her office is receiving daily updates on the status of subsidized Stafford student loans. The impact of a rate increase would affect a portion of Duke’s undergraduate population - 1,100 undergraduates used subsidized Stafford loans for the 2012-13 school year. But for new students signing up for Stafford loans, the change is costly.
Rabil, who said the increase would cut into a student’s salary and discretionary funds, added, “It’s tough, especially with the job market being like it is right now for young people.”
Rabil said they have a system in place to help students choose the best repayment programs, which helps them avoid defaulting on their loans after school. They also offer entrance and exit financial management counseling that helps students estimate their total debt.
“Hopefully, you can help them make the best choices to borrow as little as possible to do as much as possible,” she said.
At Durham Technical Community College, the school requires students to attend a financial management workshop, which they hold at least once a week. Everett Jeter, Durham Tech’s financial aid director, said they have discussed the potential rate increases with students during that program. During the 2012-13 school year, 429 Durham Tech students used subsidized Stafford loans.
About 80 percent of N.C. Central University undergraduates received subsidized or unsubsidized Stafford loans for the 2012-13 school year.