Wednesday, July 3, 2013

Student Loan Interest Rates Double After Congress Didn't Act In Time

Posted By on Wed, Jul 3, 2013 at 2:25 PM

Interest rates doubled on Monday, for Stafford subsidized student loans.
  • Interest rates doubled on Monday, for Stafford subsidized student loans.

After an entire year, Congress has failed to come up with a plan that would prevent government-funded Stafford subsidized student loan interest rates from doubling — effective Monday.

Though the lack of decision will not affect students who have already taken out these loans, it will affect the approximately seven million students expected to take out a new loan this year.

Sounds awesome right? But just wait, it gets better.

The loan increase will not only burden students with approximately $1,000 more debt, but the Obama administration is expected to gain approximately $51 billion dollars in profit, a sum roughly equal to the combined net income of the four largest U.S. banks by assets, according to the Huffington Post.

Just last month, President Barack Obama gave his own two cents on the matter:

"Higher education cannot be a luxury for a privileged few," Obama said in his speech. "It is economic necessity that every family should be able to afford, every young person with dreams and ambitions should be able to access, and now is not the time for us to turn back on young people."

Though Obama was right in his vision for college students across the nation, Congress and the White House were unable to come to an agreement that would prevent students from facing even more debt by their July 1 deadline, and ultimately providing the federal government with an outlandish profit.

So what happened? And more importantly, now what?

Let's go back a few years, when the problem first began.

In 2007, Congress voted to pass a bill, that would gradually decrease student loan interest rates from 6.8 percent to 3.4 percent over a period of five years. When the bill expired last year, Congress decided to extend the 3.4 percent rate for one more year, just days before the July 1 deadline.

Despite the additional time to come with a plan — and there were no shortage of plan proposals — no one could come up to an agreement, and the rates doubled.

On May 23, House Republicans approved the Smarter Solutions for Students Act, which would "allow interest rates on federal student loans to rise or fall from year to year with the government’s cost of borrowing, ending a system in which rates are fixed by law," according to the Washington Post. However, the plan faced opposition from the Democratic-controlled Senate, and Obama threatened to veto it due to its uncertainty for parent and student borrowers.

Obama proposed his own plan as well, which would lock the interest rate once a student or parent took out the loan, according to The Washington Post. This plan also drew criticism, as it had no rate cap.

The Senate motioned to freeze rates again, but it didn't win the 60 votes necessary for it to pass.

With the deadline come and gone, lawmakers could still potentially, and hopefully, reverse the increase. However, with so much uncertainty between Congress and the White House, I can't say I have any confidence they will come with something both effective and bipartisan, especially since they are still heavily engaged in the blame game.

Meanwhile my student loan debt is steadily increasing, limiting my options when I graduate from college in just over a year.

What's really peculiar to me is that Obama seems to understand the necessity of college students to the economy. After we graduate, we buy cars and houses and build businesses that create jobs. At least, that's what we are supposed to do. But with thousands of dollars of debt on my back, there is no way in hell I can afford any of the above, for at least a few more years. Multiply me by the millions of other college students in the same boat, and you've got a real economic crises.

On July 10, the Democrat-led Senate is expected to vote on whether or not to fix interest rates of 3.4 percent for one year, again, which is absolutely ridiculous.

Sure, as a student I would love for my interest rate on my subsidized loan to stay at 3.4 percent for another year. But what I want even more, is a long-term solution. And I'm not alone here.

Recently, more than 100 campus leaders submitted a letter to Congress regarding the interest rates. Some even went to the White House themselves, including the student body presidents of Northern Arizona University and the University of Arizona.

The letter stated:

Our classmates and their families represent a broad range of ideologies and backgrounds. However, the vast majority of students on our campuses are rallying again, like we did last year, around the belief that everyone should have access to an affordable, world-class education.

We urge you to take action by July 1st and believe now is an opportunity to implement a comprehensive, student-centered approach to student loan reform to more aggressively tackle the student debt crisis. If long-term plans prove politically impossible, we support a short-term extension of the current rates at 3.4% until a time when such comprehensive reform proves politically viable.

Unfortunately Congress passed, leaving more questions than answers — and more problems than solutions.

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