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Deadline nears for higher student loan rates

Deadline nears for higher student loan rates
MGN Online
News
Tuesday, June 25, 2013 - 1:07pm

It's crunch time for students who rely on subsidized government loans -- interest rates on them double to 6.8% on July 1.

Only Congress can hold the rates down, and so far it's not looking good. Washington lawmakers aren't close to agreeing on any deal to save the 7 million college students who are taking the subsidized Stafford loans this year.

"We're advising our schools to tell students that their subsidized Stafford interest rates are going to be 6.8% on July 1," said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

Generally, lawmakers in both parties in Congress and the White House agree that something should be done, but they don't agree on what.

And, already, the blame game has started in Washington. House Speaker John Boehner, an Ohio Republican, last week sent a letter to President Obama asking him to encourage Senate Democrats to move on student loans.

"I urge you, as president and the leader of your party, to compel your Democratic colleagues to pass a market-based student loan bill," Boehner wrote.

The Republican-controlled House passed a bill last month that would stop the rates from doubling now, but would allow them to rise later. Senate Democrats don't like it. President Obama vowed to veto it, calling it the "wrong approach." However, Obama has a plan that's very similar to the House approach.

Senate Democrats want to extend the low rates for another two years. They are holding quiet talks with Republicans on ways to extend the low rates in a way that doesn't add to deficits. Still, other aides suggest that allowing the interest rates to rise to 6.8% may be a better outcome compared to other proposals that would jack up rates even more.

The rate hike does not affect existing loans and applies only to new loans that students take out after July 1. Also, they affect only a third of all undergraduate students who rely on subsidized loans, in which the federal government absorbs a portion of the interest rate. Those are awarded based on economic need.

Far more undergraduates take out unsubsidized student loans from the government -- those rates have been at 6.8% since 2007.

Because of the disparity, some Washington leaders want to revamp the student loan program and peg rates to economic conditions. The President and House Republicans, for instance, have proposed ways of tying student loan rates to 10-year Treasury notes.

However, the two sides disagree on the details, such as how to cap rates in a way that will ensure students don't get hosed if interest rates skyrocket. They also disagree ways to let students "lock in" their rates from year to year.

Senate Democrats have an entirely different approach that would charge students only what it costs the federal government to make the loans. To pay for the program, Democrats say Congress could get rid of tax breaks for the oil and gas industry. Republicans aren't so keen on that.

Outsized student debt has become a pressing issue, with many young graduates deep in debt and without jobs. It is second only to mortgages as the largest debt that consumers carry. In 2011, students on average owed nearly $27,000 in loans.
 

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