Current students and alums with outstanding student loan debt should brace for impact. The federal student loan rate is preparing to double on July 1. The rate will jump from 3.4 percent to 6.8 percent unless Congress acts within the next two months.
The rate increase was postponed during the 2012 election cycle, but the July 1 renewal deadline is looming without a bipartisan solution in sight.
The United States Public Interest Research Group (U.S. Pirg), a higher education advocate organization, released a report brief explaining why it’s not economically-effective to increase student loan rates. “Don’t Double Our Rate” examines how the federal government profits from the federal student loan program. The government pockets more than $30 billion annually from student loan reimbursement according to the Congressional Budget Office.
“Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt,” Ethan Senack, a member of U.S. Pirg, told the New York Times.
President Obama is attempting to circumvent this student loan disaster through his proposed budget. His administration suggests creating interest rates based on the market, which has drawbacks. Though market-based rates would prevent Congress from voting on legislation, there is no protection against rates increasing depending on the economy.
Rep. Karen Bass (D-Calif.) has also introduced a bill that would cap student loan interest rates at 3.4 percent. It has not gained traction and is not expected to pass the Republican-controlled House of Representatives. The Senate has passed a budget resolution. It extends the 3.4 percent rate indefinitely, but the House of Reps is considering other alternatives. Rep. Joe Courtney (D-Conn.) is introducing legislation in the House to extend the 3.4 rate for two years.
So for now, student loan rates are in limbo and so are we. The average student graduates with $27,000 or more in debt. An increase in loan rates only furthers the panic many feel when some or all of their paychecks are tied-up in student loans.
Hopefully politicians will worry less about Beyonce and Jay-Z’s trip to Cuba and more about the impact of student loan rates increasing. I’ll be holding my breath until July 1.