The rising costs of higher education could get a lot worse for Illinois students if Congress fails to keep interest rates on federally-subsidized Stafford loans from doubling by July, according to the findings of local advocacy group released Thursday.
Data from the Illinois Public Interest Group found that Illinois college students could be in debt by as much as $380 million a year if lawmakers do not renew a 2007 law that cut interest rates down from 6.8 percent to 3.4 percent.
Legislators in both parties have expressed the need to prevent rates from increasing, but have disagreed on how to fund the estimated $6 billion it would cost to keep rates at current levela for another year.
Last month, the U.S. House passed legislation that would maintain the current rate of 3.4 percent by cutting funding for the Prevention and Public Health Fund, which was created as part of President Barack Obama’s Affordable Care Act. The proposed measure has drawn criticism from congressional Democrats as well as the White House.
According to Illinois PIRG Field Director Celeste Meiffren, keeping student loan interest rates from doubling not only impacted students but would also have significant ramifications for the state’s economy, where the unemployment rate has remained above 9 percent since 2009.
“In Illinois, 62 percent of graduates carry a student loan debt with an average of $23,885 per student,” Illinois PIRG Field Director Celeste Meiffren said. “Until hiring grows strong again, Congress must help Americans with paying for the higher education and training needed to stay competitive by preventing the interest rate hike, and time is running out.”
According to the U.S. Department of Education, an extension of the current interest rate would save more than $387 million, or about $1,000, for each of the more than 365,000 Illinois students estimated to be affected.
One of those who stand to be affected by a rise in student loan interest rates, Kathryn Pantell of Loyola University Chicago, said an impending increase has already forced her to re-think her plans of joining the Peace Corps after graduation.
“I have to make plans based on all of this debt that I’ll have,” said, Pantell, who estimates that she will owe roughly $25,000 upon graduation. “If a program won’t defer the interest payments for my debt, then I probably can’t choose that as an option because too much interest will accrue.”
With Americans now owing more on student loans - estimated at more than $1 trillion – than on credit card debt, concerns regarding the rising costs of higher education are expected to continue whether or not interest rates stay at 3.4 percent for another year, according to Rita Kirshstein, director of the Delta Cost Project, which studies education costs.
“What happened in the past five years, particularly with the 2008 recession, state appropriations [for post-secondary institutions] have been cut drastically,” Kirshstein said. “In order to make up for appropriations going down, money has to be made up somewhere or spending has to be cut, and higher education seems to have a harder time cutting spending than asking for more tuition.”
The impact of student debt has been felt even at institutions where students with loan debt was below the national average, according to Northeastern Illinois University Financial Aid Officer Maureen Amos, whose students ranked among one of the lowest in accrued loan debt among U.S. schools.
“Doubling the interest rate at this point in time is just a bad decision,” Amos said. “If it’s our intent as educators to see our students pursue degrees to completion, we need to do that by providing the opportunities for them to do so.”
It should be noted that even if the interest rate on subsidized Stafford loans were to double, the rate would still remain lower than many private student loans, where the interest rate can fluctuate over the life of the loan, as opposed to federal loans where the rate is fixed. Also, any rate increase would only affect those taking out loans after July 1, meaning the interest rate would remain at 3.4 percent for those already in loan agreements.
In spite of concerns regarding rising college costs coupled with the uncertainty of finding a job in the current economic climate, Jennifer Ma, policy analyst for the College Board said students should keep in mind that in terms of earning potential, college remains a good investment.
“Over a lifetime, on average, a college grad would make a lot more money than a high school graduate,” Ma said. “We know that unemployment is high, but if you look at college graduates compared with high school graduates, the unemployment rate for college graduates is so much lower than that for the high school graduates.”
In regards to the House bill, President Obama said he would veto the bill in its current form if it were to pass a vote in the U.S. Senate, which is expected to take place on Tuesday -- though it is unlikely to gain approval from the Democratically-controlled body.