The following is by Celeste Meiffren, field director for Illinois PIRG.
Last week, a divided Congress came together to deliver for the economy, as well as students and families, by extending the low 3.4 percent interest rate on subsidized Stafford student loans.
The rate was scheduled to double on Saturday, June 30th, without a new plan from Congress. With the atmosphere in Washington, DC even more partisan than usual due to the impending election, many were skeptical that both sides of the aisle could come together to freeze the low interest rate on these loans. Yet on Friday, Democrats and Republicans responded to the public by agreeing on a new law freezing the low rate for one year, and just in the nick of time.
Without action, student loan interest rates would have doubled from 3.4 percent to 6.8 percent for almost 8 million students; 365,416 students here in Illinois were spared seeing the cost of their loan increase by over $1,000.
On the economic front, that’s good news. For the economy to grow, we need more college graduates and they need to carry less student loan debt.
Student loan debt recently surpassed credit card debt as the top form of consumer debt across the country, at $1 trillion dollars. Such significant debt is a serious drag on the economy. The vast majority of student loans are federal, with eight in ten backed by the federal government. Extending the low rate in Illinois translates into over $387 million in savings that student loan borrowers can now put toward buying a house or starting a family once they graduate.
Federally, freezing the rate at 3.4 percent did not come cheap. Congress had to find $6 billion to pay for it. Facing intense media scrutiny, and hundreds of thousands of emails, phone calls, and petitions from students, families, and borrowers across the country, they found it. Given the tough budget environment in Washington, DC right now, this was no small feat.
Passage of the one year extension is an important step toward making college more affordable. But colleges and state and federal lawmakers will need to do more over the next year to ensure that students aren’t plunged deeper into debt. The lingering national recession has led to weak state economies, which in turn have squeezed college budgets across the country. That has resulted in tuition hikes and fee increases, which translate into more student loan debt, and the situation is not going to improve in the near term.
Next year Congress will need to come up with a longer term fix to the interest rate on subsidized Stafford student loans, now scheduled to double on July 1, 2013. Higher education in Illinois and across the U.S. continues to be vital for both individual success and the nation’s social and economic health. Students and workers are struggling in today’s economy.
Our leaders deserve thanks for the interest rate freeze on subsidized Stafford student loans. They delivered for borrowers and for our economy. Now is the time to remind them that more needs to be done to keep college accessible and affordable.