Student Loan Interest Hike Fears Allayed by Education Dept.
NEW YORK (MainStreet)Congressional inaction resulted in an increase, as of July 1, in the interest rates of new subsidized Stafford Loans. The rate went from 3.4% to 6.8%. This resulted in a hue and cry from the Beltway.
The Obama administration is intent on making "making college affordable" for Americans and sees a college degree as the ticket to the American dream.The Obama Department of Education (ED) issued a press release on July 3 reassuring those who want to borrow government money for college that President Obama is "actively working with Congress to bring rates back down for new loans."
[Read: Digital Wallets Suffer Lack of Collective Spirit]
The Obama Administration wants any plan passed by Congress to apply to all loans first disbursed after June 30 - even those already disbursed.
If the law changes, the ED states that it will adjust the rates for all those affected by the increase.
The ED is counseling those who want federal student aid to continue to apply for it. They reiterate that the rate for all Direct Subsidized Loans made after July 1, 2013, is 6.8% (Unlike unsubsidized loans, available to all undergraduate students, subsidized loans do not accrue interest while students are enrolled in college). The same rate applies to Direct Unsubsidized Loans. ED also assures people that there will be no change in interest rates for loans made before July 1, 2013.
House Republicans wasted no time criticizing Democrats for the increase. Rep. Lynn Jenkins, (R-Kan), the vice chair of the House Republican Conference said in the weekly Republican address on July 6. "I have spoken to hundreds of college students who are concerned they won't have the same opportunities their parents had," Jenkins said. "Over the last few months, Republicans made every effort to stop interest rates on some student loans from doubling, as they unnecessarily did on July 1st."
[Read: Amidst Employment Anxiety, Are the JOBS Act Haters Justified?]
"The House passed bipartisan legislation to stop the rate hike," which even reflected the president's proposal and the Senate refused to take it up," Jenkins told MainStreet. "I will continue to urge the Senate to act and fix this situationit is wrong and unfair for students. Paying for college is difficult enough without all this uncertainty. I have two kids in college, and I know how hard it can be."
But this excessive expression of distress is much ado about nothing, according to Mark Kantrowitz, a nationally recognized expert in the financing of college educations and the senior vice president and publisher of Edvisors Network, which counsels students and their families to enable them to be better consumers of student financial aid.
"The change is not the end of the world," Kantrowitz said. "It yields a $7 increase on one year's loans rate increase from 3.4% to 6.8% for the $3,357 of subsidized Stafford loans for the cumulative subsidized Stafford loan debt of $11,329 for a Bachelor's degree."
Kantrowitz noted that the interest rate on subsidized Stafford loans was 6.8% for the two academic years 2006-07 and 2007-08. There was no massive increase in students eschewing college educations then.
[Read: Advanced Elementary: Front Row Education]
He also observed that the legality of reducing the student loan interest rate retroactively is questionable. So that might present some problems for the government if they tried it.
"There are lots of things Congress can do," explained Kantrowitz. "They can pass a credit for example. But making a retroactive reduction is problematic. Borrowers are not likely to complain about a retroactive reduction in the interest rate, but it is still not legal for Congress to change the terms of a contract after the fact."
According to Kantrowitz,it seems that the student loan interest rate issue is just another political football in Washington. It is an issue that both parties are trying to demagogue and an excuse to point fingers.
"The student loan interest rate issue is more about the politics than it is about the policy," Kantrowitz acknowledged.
--Written by Michael P.Tremoglie