The cost of a college education for freshmen beginning their studies this September will go up about $4,000, if Congress fails to block a doubling of the interest rates on federally subsidized student loans.
The rates on Stafford Loans for undergraduates were cut under a 2007 law from 6.8 percent to 3.4 percent. They were set to return to the higher level last July until President Obama and Congress, with presidential and congressional races looming, approved a one-year extension of the lower rate. Now, that is set to expire July 1.
In the absence of an election and with other mandatory budget cuts taking place, there is not a strong showing of support for holding the line with lower rates. Democrats say they want to maintain the 3.4 percent rate, but the Senate budget plan does not include the $6 billion to cover the taxpayers cost of subsidizing the lower rates. The House Republican budget plan would allow the rates to double to help balance the budget over the next 10 years.
The arbitrary nature of the interest rates set by Congress has drawn criticism. Burdening students with 6.8 percent loans when interest rates in the economy are at historic lows makes no sense, Lauren Asher, president of the Institute for College Access and Success, told the Associated Press.
The higher rates would hit only students taking out new loans, but interest costs would rise about $1,000 for every year of college for about 10 million borrowers, adding to the student debt level. Two-thirds of all college students owe more than $25,000 on student loans when they graduate, and one in 10 owe more than double that. Student loan debt of $1 trillion has surpassed auto loan debt and credit card debt.
The added debt will make it even more difficult for college graduates to afford a new home or buy a car. Many are delaying the start of families or moving back in with their parents while they search for a job.
Increasing rates would hit students and their parents at a time when college costs are on the rise and many states are also cutting back on aid to public colleges and universities. Higher rates could keep low- and middle-income students from pursuing a college education.
Congress needs to hold the line on the rates. Although they wont change until July, action is needed soon. Students are receiving college admission notices and financial aid packages. They need to know how much it will cost them and what they can afford to borrow in making decisions on what college to attend.