A recent article written by Erinn Cain ’08, a staff writer for Messenger Post newspapers in Canandaigua, N.Y., focused on the recent increase of interest rates for subsidized student loans. Cain spoke with Beth Nepa, director of financial aid at the Colleges, about how the hike will affect students in the long run.
She notes, “We all know that student loan debt is a trillion-dollar problem, and it’s only getting worse. This comes at a time when unemployment is still a looming issue for many college grads.”
According to the article, college students taking out new subsidized Stafford loans for the fall term will see interest rates twice what they were in the spring. The interest rates went from 3.4 percent interest to 6.8 percent.
Nepa, who remains hopeful that Congress will reach a deal to restore the original rates, urged those affected by the increased interest rates to speak out to their local politicians. “Do what you can to let politicians know that you’re not happy about this and give them some push-back.”
The full article follows.
Student loan interest rate spike concerns colleges
Erinn Cain • staff writer • July 2, 2013
Canandaigua, N.Y. -College students taking out new subsidized Stafford loans for the fall term will see interest rates twice what they were in the spring – unless Congress fulfills its pledge to restore lower rates when it returns after the July 4 holiday.
Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, went from 3.4 percent interest to 6.8 percent interest on Monday. Congress’ Joint Economic Committee estimated the cost passed to students would be about $2,600.
“We all know that student loan debt is a trillion-dollar problem, and it’s only getting worse,” said Beth Nepa, director of financial aid at Hobart and William Smith Colleges. “This comes at a time when unemployment is still a looming issue for many college grads.”
Students only borrow money for one year at a time, and loans taken before Monday are not affected by the rate hike.
Who it will impact
The increase will only impact students who take out subsidized Stafford loans, for which the government pays the interest while the student is in school, said Susan Romano, director of financial aid at Finger Lakes Community College.
“Unfortunately, those are our neediest students,” Romano said, adding that the interest rate has been raised to 6.8 percent, the same rate that unsubsidized Stafford loans have. ” … The bottom line is that it will cost students more in the long run.”
Romano said the rate hike may make some students look more closely at their options before taking out a Stafford loan. For example, they may consider working during the school year or during the summers to pay for the cost of tuition.
“I think it’s going to make families think twice about loans, especially here at a community college,” she said. “It will make people possibly more conservative. Just because you can take one out doesn’t mean you need to.”
For millions who use federal student loans to pay for their education, there is some time before they have to make a decision. But not much.
“The only silver lining is that relatively few borrowers take out student loans in July and early August. You really can’t take out student loans more than 10 days before the term starts,” said Terry Hartle, a top official with the colleges’ lobbying operation at the American Council on Education.
But that is little consolation for students looking at unexpected costs waiting for them on graduation day if Congress doesn’t take action before it breaks again for the month of August.
Both political parties tried to blame the other for the hike, and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country.
“The federal loan program is burying them in debt. With the doubling of the interest rate, Congress is pushing student borrowers to their limit,” said Michael Russo, federal program director with consumer advocate U.S. PIRG.
Failing to meet the deadline
Lawmakers knew for a full year that the July 1 deadline was coming but were unable to strike a deal to dodge that increase. During last year’s presidential race, both parties pledged to extend the 3.4 percent interest rates for another year to avoid angering young voters.
But the looming hike lacked sufficient urgency this year, and Congress last week left town for the holiday without an agreement. Instead, the Democratic-led Senate pledged to revisit the issue as soon as July 10 and retroactively restore the rates for another year – into 2014, when a third of Senate seats and all House seats are up for election.
Even when lawmakers return, there’s no guarantee there will be the votes to restore the lower rates.
“When we pass a deadline and there are not immediate effects, the sense of urgency that accompanies a deadline evaporates and that is what I’m afraid will happen here,” Hartle said.
Getting on the same page
For months, the student loan issue was the subject of partisan sniping – sometimes within the same party.
President Barack Obama’s budget proposal included a measure that would have linked student loan interest rates with the financial markets. Fellow Democrats called that unacceptable because there were no guarantees interest rates would not skyrocket if the economy improves.
The Republican-led House, meanwhile, co-opted the president’s proposal and passed a bill in May that linked interest rates to the financial markets but with a cap on how high rates could climb.
The Democratic-led Senate tried for a two-year extension that failed to overcome a procedural hurdle. A Republican measure, similarly, came up short.
Top White House officials told allies to find any deal that could win enough votes and avert the politically and fiscally costly doubling.
An attempt at a bipartisan agreement fizzled last week when the Democratic chairman of the Senate education panel, Sen. Tom Harkin of Iowa, declared it a non-starter and urged lawmakers to extend the rates for one more year – when they get back next week.
Nepa said she is optimistic that Congress will take action on the issue and encouraged those who are concerned about the rate hike to contact their politicians.
“Do what you can to let politicians know that you’re not happy about this and give them some push-back,” she said. ” … It’s not too late with the recess going on. It gives people an opportunity to voice their opinions.”