Both Democrats and Republicans seem to agree that to let interest rates on subsidized Stafford loans double after July 1 is a major concern, especially when they have to face voters Nov. 6. What has been lost in the heightened election year rhetoric is that both the White House and Congress saw this issue coming.
Legislation passed in 2007 gradually lowered the interest rate on subsidized Stafford loans to its current 3.4 percent level. The College Cost Reduction and Access Act of 2007 enjoyed bipartisan support, with 77 U.S. House of Representatives Republicans and 35 U.S. Senate Republicans joining the then-Democratic-controlled Congress to pass legislation signed into law by President George W. Bush.
At neither that time nor any time since has Congress made substantive preparations beyond the fast-approaching expiration date. If Congress does not find a way to resolve this matter, the current interest rate on subsidized Stafford Loans will rise from 3.4 percent to 6.8 percent. More than 7.4 million students are expected to seek subsidized Stafford loans in the next academic year. President Barack Obama has included money in his budget to extend the interest rate cut, but only for one year.
Stafford loans are low-interest loans offered by the government to help students pay for college, and there are two types: subsidized and unsubsidized. Most low- and middle-income undergraduates take out both kinds of loans. Subsidized loans are awarded based on financial need and are appealing to students because the government pays the interest on the loan as long as the student is in school. About one-third of undergraduate students have subsidized loans.
Lost in the current political rhetoric is the reality that only students who take out subsidized federal student loans after July 1 will be subject to the new interest rate. Any interest rate increase would not apply to loans currently in repayment or that have already been disbursed. The overall impact of the higher interest rate will depend on the size of the loan and the repayment period.
The current fixed 3.4 percent level, one of the lowest in recent years, has only been in place for the last year. The current fixed rate of 6.8 percent for unsubsidized loans will not change for undergraduates.
Fighting over how to pay for a beneficial program has become an all-too-familiar and routine part of our political process. Now is the time for a more meaningful and holistic approach to the complex issue of college affordability and student loan debt and that time is now.
In the short-term, it is important that Democrats and Republicans work together to keep the subsidized loan interest rate at 3.4 percent. In doing so, they must avoid the routine budget technique of cutting other forms of student aid in order to pay for short-term budget fixes. In the long-term, Congress must look beyond short-term fixes to the interest rate situation while being aware that student-loan interest rates are a piece of a larger college financing puzzle.
Congress should work on a more comprehensive approach to college affordability that includes:
• passing an interest rate for subsidized loans that is fair and works for borrowers and taxpayers
• preserving and strengthening the sustainability of the Pell grant program, since low-income Pell grant recipients are more likely to borrow
• providing better information and marketing about the overall benefits of federal student loans, especially the fixed rates for the life of the loan
• highlighting some of the existing alternatives that help lower the payments on federal student loans in order to help borrowers avoid student loan defaults
• reducing student loan defaults, especially at for-profit schools, that have some of the highest student loan default rates
At St. John’s University, 97 percent of undergraduate students received more than $347 million in financial assistance through scholarships, loans, grants and work-study programs in the 2010-11 academic year and more than 10,000 students have subsidized student loans. St. John’s is committed to financially assisting our students.
Student loans remain a critical means for students to pay for their higher education, and a college education is the best investment in America’s future. College affordability and access to the resources to help finance higher education is a critical issue today, tomorrow and in the years to come.
This we can all agree on.
Brian Browne
Assistant Vice President of Government Relations
St. John’s University
Jamaica
