Student Loan Interest Rate Poised To Double
The clock is ticking toward higher interest rates for more than 60,000 Western New York college students currently receiving federally subsidized Stafford loans,
If Congress is unable to pass legislation to keep it from happening, interest rates on the loans are set to double from the current rate of 3.4 percent to 6.8 percent July 1.
The interest rates have been steadily declining since being lowered by Congress in 2007 but, without an extension of the reduced rate, the new percentage could cost New York students an average of $3,800 more over a 10-year repayment period. According to Tina Duliba, guidance counselor at Falconer Central School, this kind of increase in student loan interest rates could lead to more parents paying out-of-pocket.
“I think it will be huge for the average-income family,” she said. “Education is a big business, and for kids that haven’t been savvy and smart with their money, it’s going to be a hard call.”
Duliba said if the rates were to double, circumstance rather than personal ambition would dictate whether students choose to go to college or directly into the workforce.
“I think the education system and the loan system will make that decision for them,” she said. “(Students) are always being told they need to go to college to get a good job, but nobody really comprehends how much they’re going to owe on these loans. If the interest rates go up and the students need school loans, I believe many of them might quit after their two years and be done. Or (they could) end up finding themselves not being able to continue financially to a four-year or master’s program.”
According to Duliba, approximately half of Falconer’s graduates go on to attend Jamestown Community College, with the top 20 percent being allowed the opportunity to attend tuition-free through the USA Scholarship. She said attending colleges in the SUNY system is one of the more affordable methods of obtaining a college degree, as the in-state tuition costs are relatively low in comparison to out-of-state or private colleges.
For students that will need financial assistance for college, she said she keeps a checklist in her office to run down all that is entailed with obtaining a student loan and the ways it will affect them financially.
Federally subsidized Stafford loans are offered on the full faith and credit of the U.S. government, and are therefore offered at lower interest rates than private loans. In order to receive the loans, students must meet rigorous need requirements. The interest rate is fixed regardless of an individual’s major or enrollment status. Students are not required to begin making payments on the federally subsidized loans while they remain fully or partly enrolled-or for a six-month grace period after enrollment ends-as the government pays the interest during that period of time.
This is different from unsubsidized Stafford loans, which require payments as early as a student’s freshman year of college. The current interest rates for unsubsidized Stafford loans are set at 6.8 percent. If rates for the federally subsidized loans were to double, they would mirror those of unsubsidized loans.
Sen. Charles Schumer has been urging his colleagues to keep the rates fixed for the next two years, ensuring continued college affordability.
“To put it simply, the Senate must stop the student loan debt ‘doubling deadline’ in its tracks,” said Schumer. “College is expensive enough as it is, and by allowing the Stafford loan rate to double, we are piling additional costs on students and families. Congress needs to come together to extend the rate at its current level, so that more students in Upstate New York can walk across the stage and receive a diploma in the coming years. It’s time we do more to invest in our students, not less.”
Federally subsidized Stafford loans are only applicable to undergraduate students and, as of last year, are not offered for graduate-level students. The rate increase would not apply to loans that are currently in repayment or that have already been disbursed, but would pertain to any new loans taken out after July 1. This means students who are currently enrolled in college, but are in need of new federally subsidized loans, would pay higher rates on these new loans-adding more to their already existing debt.