Time is running out for lawmakers to come up with a way to keep student loan rates from going up. If Congress doesn't act by June 30, interest rates on student loans will double from 3.4 percent to 6.8 percent. According to U.S. PIRG, that means the average subsidized Stafford loan borrower would have $2,800 in increased student loan debt over a 10-year repayment term. Students delivered 130,000 letters to Congress asking them to stop the rate hike last week.
The problem is not likely to be resolved in time because the student loan rate issue is caught up in the bigger budget debate swirling on Capitol Hill. A one-year delay to the rate hike would cost about $6 billion, according to House Republicans. "We must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill," said Jennifer Allen, a spokeswoman for House Education and the Workforce Committee Chairman John Kline, R-Minn.
The expiration date for interest rates has been looming for some time. In 2007, Congress cut the student loan interest rates in half, but only temporarily. They essentially signed up for a student loan balloon payment. Like all deferred payments, you know it's coming, but it hurts just the same. Of course, it's a little different on Capitol Hill because lawmakers are accustomed to passing laws with expiration dates that they assume will be put off by later Congresses. This time, lawmakers who want to extend the lower student loan rate are running smack dab into conservatives who feel strongly about stopping those kinds of legislative games. (It's worth noting, however, that the 2007 legislation to cut the interest rate passed both the House and Senate on broad bipartisan margins.)
Is it appropriate to include student loan rates in the bigger federal budget miasma? Should borrowers have factored the pending rate hike into their financial planning? Are they justified in demanding that the lower rate be extended? How would a higher interest rate impact college enrollment, if at all?