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.
  • Save to favorites
  • Print

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

Ed-Tech Policy Webinar Artificial Intelligence in Practice: Building a Roadmap for AI Use in Schools
AI in education: game-changer or classroom chaos? Join our webinar & learn how to navigate this evolving tech responsibly.
Education Webinar Developing and Executing Impactful Research Campaigns to Fuel Your Ed Marketing Strategy 
Develop impactful research campaigns to fuel your marketing. Join the EdWeek Research Center for a webinar with actionable take-aways for companies who sell to K-12 districts.
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
Privacy & Security Webinar
Navigating Cybersecurity: Securing District Documents and Data
Learn how K-12 districts are addressing the challenges of maintaining a secure tech environment, managing documents and data, automating critical processes, and doing it all with limited resources.
Content provided by Softdocs

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

College & Workforce Readiness A FAFSA Calculation Error Could Delay College Aid Applications—Again
It's the latest blunder to upend the "Better FAFSA," as it was branded by the Education Department.
2 min read
Jesus Noyola, a sophomore attending Rensselaer Polytechnic Institute, poses for a portrait in the Folsom Library on Feb. 13, 2024, in Troy, N.Y. A later-than-expected rollout of a revised Free Application for Federal Student Aid, or FASFA, that schools use to compute financial aid, is resulting in students and their parents putting off college decisions. Noyola said he hasn’t been able to submit his FAFSA because of an error in the parent portion of the application. “It’s disappointing and so stressful since all these issues are taking forever to be resolved,” said Noyola, who receives grants and work-study to fund his education.
Jesus Noyola, a sophomore at Rensselaer Polytechnic Institute, stands in the university's library on Feb. 13, 2024, in Troy, N.Y. He's one of thousands of existing and incoming college students affected by a problem-plagued rollout of the revised Free Application for Federal Student Aid, or FASFA, that schools use to compute financial aid. A series of delays and errors is resulting in students and their parents putting off college decisions.
Hans Pennink/AP
College & Workforce Readiness How Well Are Schools Preparing Students? Advanced Academics and World Languages, in 4 Charts
New federal data show big gaps in students' access to the challenging coursework and foreign languages they need for college.
2 min read
Conceptual illustration of people and voice bubbles.
Getty
College & Workforce Readiness Learning Loss May Cost Students Billions in Future Earnings. How Districts Are Responding
The board that annually administers NAEP warns that recent research paints a "dire" picture of the future for America's children.
6 min read
Illustration concept of hands holding binoculars and looking through to see a graph and arrow with money in background.
Liz Yap/Education Week and iStock/Getty
College & Workforce Readiness The New FAFSA Is a Major Headache. Some High Schools Are Trying to Help
High schools are scrambling to help students navigate what was supposed to be a simpler process.
5 min read
Image of a laptop, and a red "x" for a malfunction.
IIIerlok_Xolms/iStock/Getty