Congress Needs to Act on Stafford Loan Rate

Congress Needs to Act on Stafford Loan Rate

Congress Needs to Act on Stafford Loan Rate

The current system is by no means perfect. But to make college even less accessible for the poor would have a devastating effect on inequality and upward mobility in this country.

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This piece originally appeared in Claremont Port Side, a student publication at Claremont College that receives funding and training as a member of the Campus Progress journalism network.

On July 1, millions of students across the nation will see interest rates on their student loans double from 3.4 percent to 6.8 percent.

In 2007, as part of a plan to help make college more affordable, Congress temporarily cut interest rates to 3.4 percent on subsidized Stafford loans. Since then, students have reaped the benefits of a system that makes college more affordable than before. The College Cost Reduction Act of 2007 reduced subsidies to lenders and attempted to ensure the saved monies would be spent easing student costs. Among these efforts to reduce cost were lower interest rates, rewards for college that effectively lowered tuition, and increased grant money.

However, the temporary cut in interest rates is set to expire, and Congress has yet to take any action to extend the low rates. President Obama is calling on Congress to renew the current rates at 3.4 percent until legislation is passed that further re-structures the Free Application for Federal Student Aid system to permanently make college more affordable.

With the economy still in a fragile recovery and many students from lower- and middle-class families still struggling, Congress needs to act and, at the very least, push the expiration date for the lowered interest rates forward a year.

For the highest borrowers, a doubling in the interest rates will mean a substantial $5,000 in extra student debt payments after graduation. On average, students with subsidized Stafford loans will pay $1,000 more than they otherwise would.

For graduates, this means potentially shifting career goals from more lofty, yet less lucrative plans, to careers that can save credit scores from withering away. Student-loan debt already mandates a significant amount of attention in all Americans, both old and young. Indeed, Americans aged 60 or older owe nearly $36 billion in loans, and more than 10 percent of those loans are delinquent. With an expiration of the lowered interest rates, surely, the burden of debt will weigh even heavier.

Through prevention of the rate expiration and improvement of the current Pell Grant system, higher-education could become an even greater agent of social mobility. But, if interest rates increase, and Rep. Paul Ryan’s budget proposal is successful in moving Pell Grants from mandatory to discretionary funding, higher education will become a system in which the amount of opportunity is even more directly related to income level.

A college degree is increasingly a greater necessity in professional life. Some roadblocks were temporarily moved aside, and nearly 8 million students have benefited. The current system is by no means perfect. But to make college even less accessible for the poor would have a devastating effect on inequality and upward mobility in this country. Congress can—and must—act on this important deadline.

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