With the U.S. Congress failing to act, interest rates on federally-subsidized student loans doubled this week.
Effective July 1, the rates for Federal Stafford Loans went from 3.4 to 6.8 percent, meaning that without congressional action, the 7 million students using the program will see a $4,000 increase on their average debt of $27,000.
Many area colleges, including College of DuPage, are taking action to notify parents and students applying for the fall semester what might await them in the future.
“The Congress has had one whole year to work on this,” COD Associate Vice President for Student Affairs Earl Dowling said in a telephone interview. “College costs could go up.”
Dowling said that without the expense of living in dormitories, the effect on the traditional COD student should be minimal. But he noted that older students who might not qualify for Pell Grants or state grants, and didn’t have the option of living in their parent’s home, might think twice about financing their living expenses with rates doubling.
Dowling stressed that the effect was likely to be felt as the start of fall semester drew closer, with parents questioning the added costs. He also said that the rate hike couldn’t have come at a more inopportune time.
First, students in the modern age carry significantly more credit card debt than those of earlier generations, he said. Complicating matters is that with the economy still lagging, and no real improvement in sight, the students could no longer count on the lucrative jobs that were previously thought to be the payoff for their student loan investments.
“Are we going to have to make a change in our college plans,” is the question Dowling said many would struggle to answer.
Local congressional representatives are split on what to do about the problem.
U.S. Rep. Bill Foster (D-Naperville) in April cosponsored H.R 1595, the Student Loan Relief Act, which would freeze interest rates for two years, but blames the Republican-controlled House of Representatives for refusing to act on it.
Foster also signed a discharge petition recently to force the House to vote on the bill and voted no on H.R. 1911, a Republican initiative that he said would still increase the average student’s debt by $2,000.
“We have some of the best opportunities in the world in the U.S.,” Foster said in a press statement. “But we must ensure that they are not financially out of reach for our students.”
Rep. Peter Roskam (R-Wheaton) counters that H.R. 1911 is not just a two-year, stopgap solution solution, but a permanent fix that would relieve legislators from having to revisit the issue on a regular basis.
Moreover, read an email from Roskam’s office, the Republican plan would eliminate the statutory fix on interest rates and tie the rates to 10-year Treasury bills, a proposal backed by none other than President Barack Obama.
“The Republican-led House is the only chamber to pass legislation aimed at preventing the student loan rate hike on
July 1,” Stephanie Genco Kittredge, communications officer for Roskam, said by phone from Washington, D.C.. “Our bill, which ties rates to the markets, is based on an idea contained in President Obama’s recent budget proposal and should have been an easy bipartisan win had not Democrats not put party infighting before the needs of students.”
Congress reconvenes Monday.