There are two weeks left for Congress to pass legislation on student loan interest rates, the Washington Post noted as legislators headed back to the Capitol Monday. If Congress doesn't act, college students heading to school in the fall will pay double the current interest rate on subsidized Stafford Loans.
The Post said the public reaction is likely to be harsh if Congress fails to reach consensus on a measure to keep the loan rate low for students to attend college.
Stafford Loan Basics
The Student Loan Network notes that the current interest rate on subsidized Stafford loans is 3.4 percent. The rate will automatically revert to 6.8 percent July 1 if Congress fails to act.
On subsidized Stafford Loans, the government assumes part of the interest cost while the student is in school and during grace periods and deferments, the U.S. Dept. of Education explains. The subsidies are available to students meeting financial need criteria. Unsubsidized Stafford Loans already charge 6.8 percent interest and will not change on July 1.
The maximum subsidized Stafford Loan a qualifying student may receive is $3,500 for the first year, $4,500 for the second, and $5,500 for remaining years.
The price tag for maintaining the current subsidized Stafford Loan rate is close to $6 billion, the Post noted. As the deadline nears, Congress has backed away from politicking and leaders now suggest a deal is within reach. The Republicans have proposed alternate alternative means of funding the proposal, including placing the cost on federal employees and a combination package taking the costs from Medicaid and Social Security changes. Democrats have proposed using changes to business pension fund calculations.
What's at Stake?
Seven million students are affected by subsidized Stafford Loan rates, according to the Miami Herald. Those students on average would assume an extra $1,000 in interest if the loan rate doubles, according to White House projections. Any rate hike would affect new loans taken out after July 1 and would not apply to existing loan obligations.
R. Barbara Gitenstein, president of The College of New Jersey, said in an op-ed submission to the Huffington Post, more than 50 percent of students attending private colleges typically rely on Stafford Loans. She said "increasing the debt burden on any subset of students will be harmful to student degree attainment and to our nation's economic health."
The Miami Herald noted that the possible rate hike threatens at a time when students are increasingly finding college unaffordable with financial hits coming from all directions.