Subsidized federal student loan rates are set to double in July, increasing monthly payments for thousands of students across the state, possibly making post-secondary education less of a reality for many.
The current subsidized Stafford loan rate is 3.4 percent, the rate it was lowered to in 2007 from the original 6.8 percent. Beginning July 1, unless Congress steps in and prevents it, the rate is set to go back to that rate.
“What happened was, we avoided it a year ago,” explained Jill Rayner, director of financial aid with the University of North Georgia. “It was supposed to go up to 6.8 last year, and at the last minute, Congress passed a resolution to keep it at 3.4.”
Rayner said that, in the past year, $3 billion nationally was lost due to keeping the rate that low. Because of that amount of money lost, and other contributing economic factors, she is not optimistic that there will be a solution in time for the July 1 deadline.
“Especially with sequestering and everything else going on,” she said. “I could be wrong, but ... I just really don’t think there will be a change, this time.”
At UNG, approximately 5,200 students would be impacted. That includes all of the UNG campuses.
Pam Barrett, associate vice president and director of financial aid for Brenau University, said that approximately 1,400 Brenau undergraduate students received a subsidized loan during the last school year.
Information released by the Georgia Public Interest Research Group notes that there are more than 228,000 student loan borrowers in the state who will be affected by this change. The rate increase translates into around $880 more debt per student per loan, the PIRG states.
Republicans recently presented a different proposal to set the rate.
The Comprehensive Student Loan Protection Act would require that newly issued loans would be set to the U.S. Treasury 10-year borrowing rate, plus 3 percentage points. The proposal failed in the Senate.
U.S. Sen. Johnny Isakson, R-Marietta, released the following statement when the Comprehensive Student Loan Protection Act failed to pass: “Our proposal is fair, equitable and treats everyone alike by lowering interest rates on 100 percent of student federal loans at a fixed rate. It’s the right way to address the student loan program, and it’s unfortunate that Senate Democrats blocked a bill that takes an approach very similar to the president’s student loan proposal.
“It is critically important that we reach an agreement quickly so that students will have access to affordable loans come July 1,” he said. “It is irresponsible for anyone to play politics on this important issue.”
Democrats proposed to extend the 3.4 percentage rate for another two years. That measure has not passed, either.
Depending on the amount borrowed, the difference in payments between 3.4 and 6.8 percent can be significant.
For a student with a $25,000 loan, to pay off over 10 years, the current monthly payment (at 3.4 percent) would be $246.04. If the rate goes to 6.8 percent, the payment would go up to $287.70, more than a $40 monthly difference.
Over 10 years, it is nearly $5,000 extra.
This information was calculated via GACollege411.org.
“I think that on a typical student when they were talking about it last year, that over a 10-year period and the interest rate being the difference, there’s like a $6,000 difference in the increase on earned interest,” Rayner explained. “It can have a huge impact, and when you’re talking about students who have borrowed so much money to go to school, or to go back to school, that could negatively impact them trying to get a job and being able to afford other things in life.”
The change impacts only the subsidized loan for undergraduate students. The graduate student loan rate has been at 6.8 percent for a few years now.
UNG officials have not yet really discussed adjusting other methods of financial aid for student assistance, beyond looking at some type of payment plan option. If that is something they will pursue, she said, it wouldn’t be until next year’s spring semester.
Brenau officials have not looked at other options either, Barrett said.
“If interest rates continue to rise ... private education loans may become more attractive as alternative sources of funding,” she wrote in an email. However, she added that private loans often require good credit, or a creditworthy co-signer for the student.
Subsidized loans are given to undergraduate students who demonstrate financial need, deducting the expected personal contribution, available grants, scholarships and Federal Work-Study earnings toward the cost of school, she explained.
Rayner said that many students don’t seem yet to understand the impact of the potential rate change on their future budgets.
“Most students don’t look at the big picture,” she said. “When they’re attending school, they’re just trying to get through school.”