College & Workforce Readiness

As Student-Loan Rates Rise, Advocates Fume

By Caralee J. Adams — July 09, 2013 3 min read
College students wait on the steps of the House of Representatives at the Capitol in Washington on Monday for Speaker of the House John Boehner, R-Ohio, and other Republican leaders to arrive for a news conference on federal student loan rates. Speaker John Boehner blamed Senate Democrats and President Obama for letting interest rates double on student loans.

Student financial-aid advocates are clinging to hopes that Congress will reverse the doubling of interest rates for federally subsidized student loans to 6.8 percent when it returns from recess, even as they voice disappointment about lawmakers’ failure to stave off the increase prior to the July 1 deadline.

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 time, 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,” said Rory O’Sullivan, the 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 was some hope among supporters that Congress could pass legislation to retroactively affect rates when it reconvened after the July 4 holiday. The U.S. Senate was scheduled this week to consider an extension of the 3.4 percent rate for one year. “We think it’s the best option at this point,” said Mr. O’Sullivan, adding that with the new school year around the corner, action can’t be delayed much longer.

The latest plan, a bipartisan proposal in the Senate, was rejected by that chamber’s leadership. The U.S. House of Representatives had offered its own solution, as did the Obama administration.

All approaches included some form of linking future interest rates on loans to the 10-year Treasury note rates, but student groups argued that interest rates in the proposals started higher than necessary and that the caps were too high to offer meaningful protection to students.

Increase Triggered

When Congress failed to intervene before July 1, the College Cost Reduction and Access Act expired, triggering the automatic increase for students now taking out need-based Stafford loans. The increased finance charges are estimated to affect nearly 8 million students as they take out new loans. For students who take out the average loan of about $3,600, it would translate into about $1,000 more in interest fees for the entire life of the loan. Multiply that by four years of college, and it could increase costs by $4,000, according to Gigi Jones, the director of research for the National Association of Student Financial Aid Administrators.

“There’s not much evidence to suggest that students are not going to college because of this,” said Clare McCann, a policy analyst for the New America Foundation, a bipartisan public-policy institute in Washington. Still, she said, there is concern that students might look at the new interest rate and decide to take out a private loan, which doesn’t have the same protections for students as federal loans.

In pushing for lower rates, many advocates point to the latest figures that show two-thirds of college seniors graduated with debt averaging $26,600 per borrower.

Planning Complications

The change in loan rates makes planning for college expenses uncertain, said Megan McClean, the director of policy and federal relations for the financial-aid administrators group.

“We don’t think putting a one- or two-year fix like we did last year is a good policy in this circumstance,” she said. The short-term fixes can be expensive—$6 billion last year—and were paid for, in part, by restricting eligibility.

She also said financial-aid officers on campuses across the country have been preparing for the interest-rate increase and are proceeding as if the new 6.8 percent rate 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.

A version of this article appeared in the July 11, 2013 edition of Education Week as Student-Loan Rates Rise; Fix Eyed

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Future of Work Webinar
Digital Literacy Strategies to Promote Equity
Our new world has only increased our students’ dependence on technology. This makes digital literacy no longer a “nice to have” but a “need to have.” How do we ensure that every student can navigate
Content provided by Learning.com
Mathematics Online Summit Teaching Math in a Pandemic
Attend this online summit to ask questions about how COVID-19 has affected achievement, instruction, assessment, and engagement in math.
School & District Management Webinar Examining the Evidence: Catching Kids Up at a Distance
As districts, schools, and families navigate a new normal following the abrupt end of in-person schooling this spring, students’ learning opportunities vary enormously across the nation. Access to devices and broadband internet and a secure

EdWeek Top School Jobs

Speech Therapists
Lancaster, PA, US
Lancaster Lebanon IU 13
Elementary Teacher
Madison, Wisconsin
One City Schools

Read Next

College & Workforce Readiness Documentary A Year Interrupted
When COVID-19 closed schools for millions of students, Education Week documented two seniors as they faced an uncertain future.
1 min read
College & Workforce Readiness COVID-19's Disproportionate Toll on Class of 2020 Graduates
The pandemic hit college-bound members of the class of 2020 from low-income homes much harder than it did their better-off peers, our survey found.
6 min read
Magdalena Estiverne graduated from high school this past spring during the COVID-19 pandemic. She is currently taking online community college classes.
Magdalena Estiverne graduated from high school this past spring during the COVID-19 pandemic. She is currently taking online community college classes.
Eve Edelheit for Education Week
College & Workforce Readiness Conflicting Messages Exacerbate Student Detours on the Road to College
Amid the many disruptions of the COVID-19 era, it’s more important than ever for educators to be consistent about the admissions requirements—and the costs—of college.
7 min read
Liz Ogolo, 18, who is attending Harvard University this fall, said the transition to college was difficult without guidance from her high school, which switched to remote learning in the spring.
Liz Ogolo, 18, who is attending Harvard University this fall, said the transition to college was difficult without guidance from her high school, which switched to remote learning in the spring.
Angela Rowlings for Education Week
College & Workforce Readiness Coping With Disruption at School and at Home
A 2020 high school graduate struggles to continue her education despite a disrupted senior year, a move to a new home, and spotty internet access.
3 min read
Magdalena Estiverne graduated from Evans High School in Orlando, Fla., this past spring during the COVID-19 pandemic.
Magdalena Estiverne graduated from Evans High School in Orlando, Fla., this past spring during the COVID-19 pandemic.
Eve Edelheit for Education Week