(New York City, NY) – Rates on subsidized Stafford student loans doubled on July 1st because Congress could not come up with an agreed upon solution. The House of Representatives passed a bad deal for students and the Senate passed no deal at all.
Sound familiar? That’s because it is. We had this fight just last year because the law that Congress passed in 2007 to incrementally lower interest rates on subsidized Stafford student loans — from 6.8% in 2008 down to 3.4% in 2011— was set to expire (and therefore double rates!) on July 1st of 2012.
However, as July 2012 approached, the nation was smack-dab in the middle of the Presidential and Congressional election cycles. Both parties in Congress were very much in the public eye, and the threat of doubling the rates on subsidized Stafford student loans became a big election issue. Under this kind of scrutiny, Congress made the bi-partisan decision to extend the 3.4% rate on the subsidized Stafford loan for one year, until July 1st of 2013.
Unfortunately, Congress failed to meet this year’s deadline of July 1st and the rates instantly doubled to 6.8%. However, hope remained as the Senate was scheduled to vote on July 10th to bring rates back to 3.4% and freeze the rate for one more year. Sadly, the Senate failed to pass the bill.
Leaders from both parties have agreed to pass some type of student loan reform measure that would be deficit neutral. The specifics of the plan are still being worked out but reportedly include tying interest rates to 10-year Treasury notes with an add-on percentage set by Congress. Rates would be variable year-to-year but for each loan the rate would stay fixed throughout the repayment life of the loan. The conversations have also included capping the interest rate at just below 10%. Congress continues to debate whether rates should differ between the various types of loans (PLUS, subsidized, unsubsidized, etc.). The debate is on hold until the Congressional Budget Office (CBO) is finished scoring the various proposals submitted by both parties.
Last year, New York State graduates had an average debt of $27,310. Out of the 37 million Americans who hold outstanding student loan debt, 2.7 million, or 7.3%, of debt holders across the nation are New Yorkers. As New Yorkers, we collectively owe more than $1.7 billion in Stafford loans, with an average loan of $4,033. Because the interest rate on federal subsidized Stafford loans has now doubled from 3.4% to 6.8%, more than 422,000 New York State residents will pay an estimated $993 more per loan. Additionally, the average student in New York State who receives four years of subsidized Stafford loans will now end up paying $3,798 more over the course of a ten year repayment term if Congress does not reach a deal that would lower interest rates. If the interest rate did not double, it is estimated that student loan debt holders in New York State would have saved a collective $383,501,919.
With only a few weeks left of the legislative session, Congress needs to pass an extension of the program to keep rates on subsidized Stafford loans at 3.4%. Moving forward, lawmakers must also keep in mind that this timely fight over student loan interest rates does not address the full picture of our existing $1 trillion national student loan debt, rising tuition prices, and lacking state and federal need-based grant programs. For now, the fate of student loan interest rates continues to be unknown, and the fight continues.