Remember the student loan rate debacle from last year and President Obama’s slow jam with Jimmy Fallon? Then the compromise? It seems a bit like déjà vu – only, as of July 1, 2013, time’s up and there is no bipartisan agreement. Student loan rates officially doubled from 3.4% to 6.8[i] on July 1st, 2013, and Congress is on vacation. The issue won’t be addressed again until Congress reconvenes.
This hike will impact students who “use federal loans to pay for their education”[ii]—specifically, subsidized Stafford Loans which make up a quarter of federal borrowing[iii]. Congress’ Joint Economic Committee estimates the cost that will be passed down to students to the tune of $2,600[iv].
According to the White House, lawmakers could reach a deal before most students return to college in the fall. In the meantime, however, the news, while not surprising since it was known that Congress had a year to reach an agreement, may be disturbing to students who rely on lower interest loans to fund their education.
The interest rate loan hike will not impact the amount of money students may borrow but when graduation looms and loan grace periods end, higher interest rates mean students could face larger amounts of debt than if interest rates had remained the same. The increase may cause some students to question whether or not they want to take out Stafford loans as originally planned.
While President Obama did submit a budget proposal which “would have linked student loan interest rates with the financial markets”[v], his proposal was not accepted and a bipartisan agreement non-existent.
A slightly hopeful point is that “relatively few borrowers take out student loans in July and early August. You really can't take out student loans more than 10 days before the term starts,”[vi] stated Terry Hartle, an official with colleges’ lobbying operations at ACE or the American Council on Education.
Time will tell if Congress can work together to comprise a deal that will keep college students and education at heart.