Interest rates on student loans in limbo
MARIETTA – Interest rates on certain kinds of federal loans to college students could double as a result of the latest Washington, D.C., stalemate, but even then, they will likely remain a viable option for many college students, a Marietta College official said.
Separate Democratic and Republican bills to stop the increase on federally subsidized Stafford loan rates failed last week when neither could garner the 60 votes needed to move forward on procedural votes. Both sides seem to agree something should be done to stop the rates from increasing, but so far, they haven’t been able to settle on how to do it.
Recent Waterford High School graduate Alan Brooker, 18, is headed for the University of Cincinnati in the fall and he may need Stafford loans to help him afford it. While he admits he hasn’t given too much thought to his post-college debt, he’d like to see the interest rates stay on the low end.
“That’d be a major concern,” he said. “Prices are expensive enough the way it is for college students.”
Students already finished with college would not see a change in their interest rates, but incoming students like Brooker would. And because Stafford loans only apply to a single school year, current students who received the loans in years past at 3.4 percent would be paying the higher rate on subsequent loans.
A release from the Ohio Public Interest Research Group estimates more than 360,000 borrowers could be affected and says keeping the rate at 3.4 percent would save more than $322 million that could be spent in other parts of the economy.
In the 2012-13 school year, 972 Marietta College students received more than $4.6 million in Stafford loans, while 747 Washington State Community College students received more than $2.2 million, according to statistics provided by U.S. Sen. Sherrod Brown’s office.
Kevin Lamb, director of student financial services at Marietta College, estimates the interest rate increase could add about $30 to the monthly payments of students who receive Stafford loans for four years in college and about $3,800 total over the life of the loan. While he hopes “the lower interest rates would prevail,” Lamb said even at the higher rate the Stafford loans would have advantages over alternative approaches.
“The subsidized Stafford loans, even if they did have 6.8 percent, probably come out being in the long run still a good choice for students to look at,” he said.
Many private education loans would require a co-signer, and interest would likely be at a variable rate, Lamb said. If the student did obtain a fixed-rate loan, it would probably be closer to 8 percent, he said.
That doesn’t mean private loans aren’t useful, but Lamb said students should consider their options carefully when deciding what kind of loan to get. He said fixed rates seem like a better idea for first-time borrowers.
“I think the fixed interest rate’s a little bit easier to wrap their minds around,” Lamb said.
Lamb said he’s heard some concerns from students about the possible increase, as he did last year before Congress extended the 3.4 percent interest rate for another year.
While the primary burden of increased interest rates would fall on students, colleges and universities could be impacted as well, since student loan default rates are one factor used in determining financial aid and other considerations, Lamb said.
The 6.8 percent rate may not look good next to 3.4 percent, but, according to The Associated Press, it would be comparable to eventual rates under plans supported by House Republicans and President Barack Obama that would tie the interest rate to financial markets.
Under both, rates would be lower than 6.8 percent in the first few years, the AP reported. But by 2017, the rate was projected to be 7.4 percent under the House GOP plan and 6.1 percent in 2018 under the president’s version.
Obama has threatened to veto the House bill. Congressman Bill Johnson, R-Ohio, accused the president of playing politics with the issue.
“The House passed a bill, with my support, that would permanently fix the student loan interest rate issue, and prevent Washington from using America’s college students as political pawns in the future,” Johnson said in an emailed statement. “The bill was based on the president’s own proposal; yet he was unsatisfied. Why? He now wants Congress to continue subsidizing the cost of students loans, leaving the American taxpayers to foot the bill.”
Brown supported a bill in the Senate to extend the 3.4 percent rate for another two years. Although that didn’t move forward, he said in an emailed statement Tuesday that he’s still working on the issue.
“Affordable education should be a top national priority,” Brown said. “That’s why I’m working with leadership from both sides of the aisle to reach an agreement that will freeze interest rates so a college education remains accessible for hundreds of thousands of Ohioans who rely on these critical loans each school year.”