As the deadline draws near for Congress to find a solution to the ongoing debate over how to prevent student loan ineterst rates from doubling, education advocates have warned that a failure to act would negatively impact the nation’s economy.
As the deadline draws near for Congress to find a solution to the ongoing debate over whether to allow interest rates for federally-subsidized Stafford loans to double, education advocates have warned that a failure to act would negatively impact the nation’s economy.
On Tuesday, Senate leaders reportedly came to a tentative agreement that would keep the interest rate at 3.4 percent, which is scheduled to rise to 6.8 percent on all loans taken out after July 1 if Congress fails to act.
The issue has turned into a political fight between Democrats and Republicans for months, with both parties unable to agree on how to fund the estimated $6 billion cost needed for a one-year extension to keep rates at their current level.
In April, the Republican-led U.S. House passed a bill to fund and extend the current rate by cutting funding for the Prevention and Public Health Fund, a part of President Obama’s Affordable Care Act designed to lower health costs through the promotion of more preventative care measures.
Under the new Senate agreement, $5 billion would come from a pending bill that would change the way companies compute their contribution to employee pensions, effectively lowering the amount they contribute as well as the tax deductions that can receive. The remaining $1 billion would come from the projected savings that would come from a proposed measure that would limit the number of years part-time students at four-year universities can receive federal subsidies.
While lauding lawmakers for nearing a compromise, the Illinois Public Interest Research Group's Federal Higher Education Advocate Rich Williams said Congress needs to do more to ensure a doubling of the interest rate does not occur.
“It’s good that there’s a tentative deal, but students and families cannot budget for next year on something that’s tentative,” Williams said during a media conference call yesterday. “Now is the time for Congress to head into the final lap and pass this much-needed legislation.”
An estimated 7.5 million students are expected to borrow federally-subsidized Stafford loans after July 1. Williams said an increase in the interest rate would affect as many as 365,000 Illinois students, costing them on average an additional $1,000 a year throughout the life of their loan, which typically takes 10 years to pay.
DePaul graduate student Marty Gleason says the impending rate hike has forced him to reconsider plans to further pursue a career in social work in favor of a job that is more lucrative to meet his cost-of-living expenses.
“If the rates double, I will have to find a job in the corporate sector to make my end’s meet,” said Gleason, who currently works as a Cook County juvenile probation officer and hopes to someday work with at-risk youth. “We need to empower people and educate people so that they can go in and work on the social issues that have been confounding the nation for a very long time.”
The debate over student loan interest rates has helped to highlight concerns over the rising costs of higher education: The amount of student loan debt in the U.S. is estimated to have exceeded $1 trillion.
Education experts have contended rising school costs coupled with a tenuous and increasingly-changing job market has created an even greater need to make higher education more accessible.
Though keeping interest rates at their current level would help keep the problem from getting worse, according to Higher Education Policy Institute President Patrick Callan, it does little to address the bigger challenge in making college more affordable.
“We believe we need more people to go to college for their own sake, but also so the country can be competitive, and we have no basic financial plan for doing that,” Callan said. “And so year by year, especially when the economy is bad, we put a greater and greater burden on the students and the students are forced to borrow more and more money.”
Callan said state governments needed to do more to better fund public higher education institutions to help students avoid incurring increased tuition costs. According to data by the U.S. Department of Education, state and local funding for public four-year colleges and universities has declined from just below 60 percent in 1985 to below 40 percent in recent years. “This is largely a state problem because the majority of our students are in public institutions and its states that have the influence on tuition policies and state-level financial aid,” Callan said.
According to Illinois PIRG figures, 62 percent of Illinois college graduates incur an average student loan debt of more than $23,000. The group adds that an extension of the current interest loan rate would save them more than $380 million.
If the Senate deal is able to pass, it is still uncertain how it will fair in the House. Though members of both parties have called for action to keep the student loan interest rate from increasing in two days, some Republicans have come out in opposition against extending the current rate. In a debate held last month, U.S. Rep. Joe Walsh (R-8), a favorite among Tea Party supporters, advocated allowing the rate to double, saying it amounted to an attempt by the President “to throw a bone to young Americans.”
Image: AP Photo/Mark Humphrey