Interest Rate On College Loans Could Double This Summer
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MINNEAPOLIS (WCCO) – The interest rate on some federal college loans is set to double this summer if Congress doesn’t do something about it.
Minnesota State University Mankato senior Mike Ramirez figures by the time he graduates, he’ll have about $20,000 in student debt.
Right now, his subsidized Stafford loan gives him $2,750 a semester.
But Ramirez is better off than the average Minnesota student, whose debt is just below $30,000.
“That’s handcuffing us for starting a life when we get out of college,” he said. “Instead of buying a house or a car, we’re having the rent an apartment to pay off student loan debts.”
Ramirez is working with the Minnesota State University Student Association to fight any increase in the rate on subsidized federal Stafford loans.
It’s set to double this summer if Congress doesn’t do something about it. Right now, it’s at 3.4 percent, but could rise to 6.8 percent on July 1.
The U.S. Department of Education estimates that would mean a $1,000 per student over the 10-year term of the loan.
“I’m not speaking on behalf of the governor, but as someone who has worked in financial aid, you want to see students get the best deals possible,” said Ginny Dodd, the manager of State Financial Aid Programs at the Minnesota Office of Higher Education.
Minnesota Rep. John Kline, R–Apple Valley, is proposing changing the rate permanently from a fixed one to one based on the market. He thinks it’s a better long-term solution for students.
“No one wants to see the student loan interest rates increase, particularly as young people continue to struggle with high un- and underemployment,” Kline said. “But we need to move away from a system that allows Washington politicians to use student loan interest rates as bargaining chips, creating uncertainty and confusion for borrowers.”
From 1991-2005, the rate was set to follow the market. But, in 2006, when it hovered above 8 percent, politicians changed it to the fixed 3.4 percent. In 2012, that rate expired, but was extended to last one more year until July 1, 2013.
Kline says if the market rate was still in place, the current interest rate on subsidized Stafford loans would be under 3 percent.
Student advocacy groups, like the Public Interest Research Group, fear a market rate would harm students in the long-run when rates increase. In Congressional hearings held Wednesday, there was discussion of a cap, but details are still preliminary.
Most experts don’t believe any rate increase will stop students from using the Stafford program because it offers benefits like forgiveness, deferrals and extended payment plans.