As the deadline looms for the expiration of a federal student loan interest rate cut, Congress must again decide if it would rather substantially raise the budget deficit or take a few extra bucks out of recent college grads’ pockets each month to pay off the interest on their student loans.
On July 1, the interest rate on subsidized Stafford loans will return to pre-2008 levels, increasing from 3.4 percent to 6.8 percent. The expiration of the interest rate cut is expected to cost college students about $5,000 on new loans, which comes out to about $7 more a month per student.
Yet, if the rates remain the same, it will cost the government roughly $6 billion a year, money the government – which is $16 trillion in debt already – doesn’t have.
The debate over the cut extension might sound familiar. That’s because it is. Only a year ago, during an election year, Congress dodged a long-term decision and extended the cuts for another year.
Congress has been avoiding making a permanent decision on the level of interest students with subsidized Stafford loan are expected to pay for the last five years. In 2007, the student loan interest rates were sliced to 6 percent for new loans, a move that went into effect in 2008. Rates were cut again over the next three years, dropping to 5.6 percent in 2009, to 4.5 percent in 2010 and to 3.4 percent in 2011. The looming rate ‘increase’ would simply let the cuts expire and return interest rates to where they were intended to be.
Despite the fear-mongering campaign by the Obama administration, the ‘increases’ wouldn’t be as bad as they sound. Only new federal loans would be affected and a fraction of them at that. Private loans and unsubsidized Stafford loans would not be changed. And the cost to college students would be approximately the price of an alcoholic beverage or a fancy, grande Starbucks coffee.
Neither Republicans nor Democrats have found a way to produce the necessary $6 billion to extend the interest rate cuts, though Obama’s April 10 budget could include a provision for it. Rep. Paul Ryan’s (R-Wisc.) plan allows the cuts to expire and Senate Democrats want to continue the cuts, though their plan doesn’t explain how they’d pay for it.
Considering that the House Republican budget calls for cuts to expire and Republicans control the Senate, it’s likely that the interest rate will finally go back to its intended level – a good sign in the battle to reduce the federal government’s dependency on debt.
Francesca Chambers contributed to this report.
