The interest rate for a new subsidized Stafford loan is 6.8 percent, up from 3.4 percent, after Congress failed to agree on a solution to halt the hike.
The interest rate for new subsidized student loans doubled Monday, but area legislators and financial aid directors remain optimistic that Congress will act to reverse the jump before loans are dispersed for the semester.
“We hope it’s a good outcome for students,” said Irene Lewis Motts, spokeswoman for Stark State College.
Interest rates on new need-based student loans are now 6.8 percent, up from 3.4 percent, after Congress failed to agree on a solution to halt the hike. Some area university officials said they’re waiting to contact students about the increase before they know whether the rate is going to stick.
The doubled interest rate stems from the College Cost Reduction and Access Act, passed in 2007. The law dropped the interest rate for the need-based loan from 6.8 percent to 3.4 percent during a four-year period, ending in 2011. Congress approved a one-year extension to keep the rate for the subsidized loan down in 2012, but it expired at the end of June.
In May, the U.S. House of Representatives passed a Republican-backed bill that would tie subsidized Stafford loan interest rates to the 10-year U.S. Treasury note, plus 2.5 percentage points, with a cap at 8.5 percent.
But Democratic senators proposed a bill stopping need-based student loan interest rate hikes for two years to give Congress time to overhaul how it handles student debt.
Legislators have promised to revisit the student-loan discussion this month.
For a student who takes out the full subsidized loan amount — $23,000 — during his or her undergraduate career, the rate jump means paying an extra $4,600 in interest over 10 years, according the finaid.org loan calculator.
Sen. Sherrod Brown, D-Ohio, said through a spokesman that he will continue to work with legislators to reach a solution.
“I am extremely disappointed that Congress would let interest rates double on more than 360,000 hard working undergraduate students across Ohio,” he said in an email.
On Friday, Sen. Rob Portman, R-Ohio, issued a statement saying he is cosponsored a bipartisan compromise using a “market-based framework.”
“Some within the Senate Democratic caucus would rather score political points on the back of Ohio’s young than vote on a workable, bipartisan solution,” he said in the statement.
While local students are in the process of applying for loans, the funds won’t be dispersed until 10 days before the fall term starts, Michelle Ellis, executive director of student financial aid at the University of Akron, said.
Ellis said students are thinking about the interest rates on their loans, but the increase isn’t going to be something they feel immediately. Her office might send a letter to students, but she is also waiting to see whether Congress takes action later this month.
At Stark State, Motts said that while the financial aid office encourages students to borrow wisely, the school isn’t going to provide specific communication about the interest rate increase yet.
Page 2 of 2 - “I think if you put out information that may change later, we tend to confuse students” who are debating taking out loans, Motts said.
Reach Alison at 330-580-8312 or email@example.com.On Twitter: @amatasREP