Beginning in July, the interest rates on federally subsidized student loans will double from 3.4 to 6.8 percent.
The topic of student loan interest rates became the newest weapon in national and presidential campaigns over the weekend. In 2011, student loan debt for the first time exceeded credit card debt, tipping the scales at over $1 trillion. Unless Congress passes a measure in the meantime, interest rates on student loans will double from 3.4 to 6.8 percent in July, and estimates range from an increase of $1,000 to $4,000 for individual loan holders. The 3.4 percent interest rates were first available for the 2008-2009 school year, and then only for subsidized undergraduate loans. The rates were set to return to their original levels for the 2012-2013 school year.
President Obama, already planning campaign stops in key electoral districts in Colorado, North Carolina and Iowa, discussed the issue in his weekly video address.
Obama said that while earning a college degree has never been more important, it’s also never been more expensive. “Students who take out loans to pay for college graduate owing on average $25,000,” the President said. President Obama also said it was up to Congress to prevent the increased interest rate from affecting over 7 million students beginning July 1 of this year.
“Making it harder for our young people to afford education and earn their degrees is nothing more than cutting our own future off at the knees,” the President said. According to the National Center for Education Statistics, between the 1999-2000 and 2009-2010 academic years, the average costs associated with attending a public university increased 37 percent, while private school costs rose by 25 percent. For many students, this translates into increased student loans.
Senator Charles Schumer also weighed in on the issue, holding a press conference at his Manhattan office on Sunday to urge Congress to prevent student loan interest from doubling, calling the impending increase in interest rates to the sound of nails on a chalkboard for New York students. Students from across New York joined Schumer to protest the increased interest rates.
Schumer has been making rounds across the state in support of S. 2051, a bill introduced by Senator Jack Reed of Rhode Island that would extend the reduced interest rate on Federal Direct Stafford Loans for an additional year. “College tuition has skyrocketed at universities and colleges across the country, placing a huge burden on middle class families,” Schumer said, emphasizing the need to keep higher education affordable “as the economy is just starting to turn the corner.”
Priscilla, a 2010 graduate of Syracuse University who wished for her last name to remain unpublished, currently has $49,000 of outstanding student loan debt from a combination of government and private loans. "Toward my junior and senior years I could only get private loans with 10 percent interest because even though my estimated gross family income went down, restrictions were put on how much you could receive from federal loans." According to Priscilla, her university also pushed unsubsidized student loans when they were opened up during her last two years of school, when she needed them the most because the university discontinued a major grant that helped fund her education, which substantially increased the financial burden for her because the interest began to accumulate while she was still taking classes.
"The financial aid office controls everything, so we don't have a choice - except not to graduate," Priscilla said. She estimates that 15 percent of her gross income goes directly to paying off her loans, but when taking her credit card debt - used to purchased text books - into account, she sets the bar around 20 percent of her take-home earnings. Her parents also took out a $25,000 Parent Plus Loan to help her pay for school, something they also did for their two older children, which has also placed a lot of economic hardship on them."
Priscilla was unaware that loans with a 3.4% interest rate were available at all during her four-year education. The university selected loans on her behalf with an interest rate of 6.25 percent, which she accepted because they were still cheaper than private loans. Her situation, shared by millions of college students across the nation, indicates that the complicated formulas for accepting and paying back student loans are not fully communicated to the students who are suffering under the strain of debt.
Another bill, H.R. 4170, otherwise known as the Student Loan Forgiveness Act of 2012, is taking another tack on dealing with the financial pressures of student loans in an unforgiving job market. This bill would create a new 10/10 Loan Repayment Plan, which caps payments at 10 percent of the borrower’s discretionary income, which is about the same approach suggested in President Obama’s Pay As You Earn proposal. Once the borrower has made 120 payments the forgiveness provision takes effect. Forgiveness is capped at $45,520, but there is no cap for borrowers whose loans predate the bill, making those who have been paying back loans for 10 years eligible immediately.
The bill would also introduce Public Service Loan Forgiveness, in which forgiveness kicks in after 60 payments instead of 120 for individuals who take jobs in the public service sector. The bill would also cap interest rates on federally subsidized student loans.
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