If Congress does not take action, a scary hike in interest rates on federal student loans will occur this summer. The interest rate is scheduled to double, this July and will affect many college students throughout the country. This current school year, loans taken out by college students had an interest rate of 3.4 percent. This rate was due to a law from 2007 that phased in rate reductions for subsidized Stafford loans to undergraduate students. The law did not specify what the rate would be after this year. Thus, unless Congress takes action soon, rates on new loans will revert back to a rate of 6.8 percent, which was the interest rate in 2007.
This past week in his State of the Union address, President Obama urged Congress to stop the hike in interest rates on student loans from going into effect. He also urged Congress to extend the enhanced Hope Scholarship program. This program increased the maximum tax credit to $2,500.00. The President also wants to double the number of work-study jobs at colleges and universities. This Congress has been seen as a deficit- conscious Congress and it is unclear whether they will extend the interest rate. If Congress extended the interest rate of 3.4 percent, it would cost $5.6 billion a year. If all of President Obama’s requests were put into place it is projected that it would cost at least $10 billion a year.
Throughout his term, Obama has had a focus on increasing accessibility to college for low to middle income children. Despite his mission, Congress has taken multiple steps to decrease student aid. With the increasing costs of college, and the decreasing aid it is hindering access for many students to college. Not only has Congress taken steps at eliminating aid for college students, they have put in place polices that hinder graduate students ability to finance their degrees. Congress has eliminated subsidized loans for graduated students, as well as most discounts. Congress has cut $8 billion from the Pell Grant program. The Pell Grant program is for low income students, and Congress also reduced the income level for eligibility for a full Pell Grant. Many believe that since Congress just passed legislation cutting student financial aid funding, it is unlikely that they will pass legislation increasing student aid funding.
By raising student loan interest rates, it will be very costly to students. The Project on Student Loan Debt found that two thirds of college seniors in 2010 at student loan debt. The average balance of the debt was more than $25,000. Given the current state of the economy, it is concerning for students to take on the cost of college, with job prospects low after graduation and be burdened with debt. Currently, Americans owe more in student loan debt than credit card debt. This increase would affect more than $8 million dollars. This increase would mean that students would be paying $5000 more on their student loans. Hopefully, this rate increase will not go into effect and Congress will act to help students and their families afford college education.
Latest posts by Emily (see all)
- Selling your house at a loss vs. Renting it out - March 7, 2012
- The Federal Student Loan Rate is Scheduled to Double - February 20, 2012
- Preparing for a Job Interview - February 14, 2012