The deadline for Congress to intervene to stop student loan rates from doubling has come and gone.
On July 1, interest rates on federally subsidized student loans went from 3.4 percent to 6.8 percent, as scheduled. But student advocacy groups continue to pressure lawmakers to act — ideally, on a long-term fix, but more likely on a one-year extension of lower rates as a Band-Aid approach.
If it all sounds like familiar frantic, last-minute wrangling, that’s because it is.
Last year, when lawmakers confronted the same scenario, a compromise was struck on June 29 to extend the 3.4 percent rate on federally subsidized student loans for one year. This summer, several long-term proposals were floated tying rates to the market, but the parties couldn’t agree on the details, including setting a cap on rates.
“It feels like the same old story now with Washington broken,” says Rory O’Sullivan, policy and research director for Young Invincibles, a Washington-based nonprofit advocacy group. “This time around there were lots of policy ideas about how to fix things, and even then we couldn’t get anything done. It’s pretty disappointing.”
There is some hope among supporters that Congress could pass legislation to retroactively affect rates when it reconvenes next week. The U.S. Senate is scheduled July 10 to consider an extension of the 3.4 percent rate for one year. “We think it’s the best option at this point,” says O’Sullivan, adding that with the new school year around the corner, action can’t be delayed much longer.
This latest episode is part of the larger, growing concern about college affordability and student debt, which now stands at more than $1 trillion.
U.S. PIRG says congressional inaction will cost students a total of $7 billion or about $1,000 per student, per loan. “Congress should reverse this wrong-headed rate hike as soon as possible,” its July 1 statement read.
A statement from The Education Trust, a non-profit based in Washington, said: “With student debt at an all-time high, American students should not be required to pay even more for college just because Congress is unable to reach an agreement.”
While this issue of interest rates on its own is not likely to be enough to hurt college access, experts note that it complicates what is already a confusing financial picture for students.
Clare McCann, policy analyst with the New America Foundation, a bipartisan public policy institute in Washington, says there is concern that students might look at the new interest rate and decide to go with private loans, which don’t have the same protections for students as federal loans. The institute has a calculator on its website here where students can enter the amount of their loan and see what the monthly payments would be under various interest-rate scenarios.
This is a sentiment shared by other groups, such as The Institute for College Access and Success, a nonprofit in Washington, which joined 30 other organizations last month to call for increased counseling around private lending.
The change in loan rates makes planning for college expenses uncertain, said Megan McClean, director of policy and federal relations for the National Association of Student Financial Aid Administrators. Its members on campuses across the country had been preparing for the interest rate increase and are proceeding as if the new rate of 6.8 percent is permanent, although talk of Congress possibly intervening can complicate the process. “It’s tough not to know until the actual day what your rate is going to be and how to plan for it,” said Ms. McClean.
Student loan interest rates are only one factor that affects the cost of college and the overall system is “crying out for reform,” said Pauline Abernathy, vice president of The Institute for College Access and Success. Ms. Abernathy hopes college finance issues will get a more comprehensive review as Congress considers reauthorization of the Higher Education Act at the end of the year.