Consensus lacking on student loan rates

Federal student loans will be on many new students’ horizons as they finalize their financial aid packages next month.

And this week, the U.S. Senate is facing mounting pressure to address the year-to-year uncertainty surrounding the loans.

The interest rate on new subsidized Stafford loans doubled last week from 3.4 to 6.8 percent after the Senate rejected a bill passed in May by the House of Representatives and failed to find an alternative in time.

President Barack Obama and both chambers of Congress support a permanent answer to the nagging interest rate question — but their squabbling over competing plans could lead to a one-year Band-Aid until they reach agreement.

A Senate procedural vote was scheduled for Wednesday to return loans to the 3.4-percent level for a year. As of The Daily Tar Heel’s deadline, no action had been taken.

“Getting all of those players on the same page has proved extraordinarily difficult,” said Ferrel Guillory, a UNC journalism professor and expert on Southern politics.

More than seven million undergraduates take out subsidized Stafford loans annually — including nearly 200,000 in North Carolina.

For current students with the loans, the lower rate will remain in place regardless of federal action.
But first-time student borrowers could face darker and more muddled financial waters next month, said Jeff Lieberson, spokesman for the Association of Public and Land-grant Universities.

“What we’ve seen is short-term fixes over and over again,” he said.

“APLU is strongly in favor of a long-term fix, so that students aren’t used as a political football every year.”

Kristin Anthony, assistant director of the loan program in UNC’s Office of Scholarships and Student Aid, said 4,000 UNC undergraduates receive a subsidized Stafford loan on average each year — about one-fourth of the undergraduate population.

If the 6.8-percent rate stays in place, the average total interest payment on a loan would more than double, Anthony said.

UNC students with the loans pay $150 in monthly interest on average, and they would pay $30 more each month at the higher rate.

The UNC system released a statement in June expressing support for a market-based rate and a fixed cap, similar to the plan passed by the House.

Jessica Thompson, an analyst at The Institute for College Access and Success, said a rate cap, among other safeguards for students, is essential.

“It’s part of a broader picture in affordability in college costs.”

UNC junior Frank Wu said he took out a subsidized Stafford loan to offset his out-of-state tuition. He said the six-month grace period before beginning monthly payments is ideal for students facing uncertain job prospects.

But he said the rate should at least be lowered after ballooning last week, and preferably stay fixed over time. Many private lenders can offer better deals than 6.8 percent, he said.

“Why would I want to take a loan out from the government at a similar rate?”

Still, Guillory said delaying a decision on loans could benefit congressional candidates in the 2014 election.

With rising tuition and a greater need for education past high school to improve one’s job outlook, student loans are more of a concern than ever for people under 30, he said.

He said politicians could use a later compromise to woo uncommitted young voters.

“It could have an effect on how young people adopt their political loyalties,” he said.

Total student loan debt is now more than $1 trillion.

Thompson said she hopes the Senate will vote to restore lower interest rates for a year.

But Anthony said Congress needs to ensure loans’ predictability sooner rather than later.

“The number of changes made to loans over the last three to four years is really nickel-and-diming the future of our country.”

Contact the desk editor at state@dailytarheel.com.