Student loan rates set to double July 1

Rate increase may cause average borrower an extra $2,600

Demonstrators gather near the steps of the old Capitol during a rally protesting proposed tuition increases at the Unive
Demonstrators gather near the steps of the old Capitol during a rally protesting proposed tuition increases at the University of Iowa on Friday, Feb. 11, 2011, in Iowa City, Iowa. (Jim Slosiarek/The Gazette)

Congress has not reached agreement on a plan to keep interest rates on some federal student loans from doubling on July 1, but some financial aid officials and student leaders say they are hopeful a compromise can still be had to save student borrowers thousands of dollars.

Work on a bipartisan plan in the Senate to stop the rate increase has so far proved unsuccessful. The interest rate on federally subsidized Stafford loans -- given to the neediest students -- is set to double on Monday, from 3.4 percent to 6.8 percent. That higher rate would apply to new student loans, not to loans students have already taken.

Some are hopeful Congress can reach a deal after the July 4 holiday recess, to fix the rate retroactively.

"I have no reason to think that it's nothing but a high priority for Congress," said Mark Warner, student financial aid director at the University of Iowa. "That is certainly our hope, that they will come up with a viable option, a solution that will be beneficial to students and families, and that it will be retroactive."

The additional cost from a rate increase affects subsidized-loan borrowers when they go into repayment. One report from Democrats on Congress's Joint Economic Committee said the rate increase would cost the average borrower an extra $2,600 over 10 years of repayment. Other estimates have said it would cost borrowers an additional $1,000 over the life of the loan.

Republicans and Democrats are arguing over maintaining the lower interest rate for a longer period of time, or establishing variable interest rates that could eventually go higher.

Students are being put in the middle of a political issue, said UI Student Government President Katherine Valde, 21, a senior in political science and history. Valde was one of 12 student government presidents from Iowa colleges and universities who recently signed a letter asking Congress to halt the increase and work toward a permanent approach to student loan reform.

"I think it's pretty disheartening to see that Congress couldn't reach a compromise before this deadline," Valde, of Coralville, said Friday. "I think that students are put in the middle. This same issue, it came up last year, it keeps coming up every few years. This isn't the right population to be playing political games with."

The extra $1,000 or $2,000 over the life of the loan may not seem like a lot of money to some people, Valde said, but for new graduates earning starting salaries, it can mean a harder time making monthly rent or car payments.

"It's a lot of money to young people," she said.

Iowa students had the sixth-highest average debt at graduation for the class of 2011, at $28,753, according to the Project on Student Debt report from October 2012. 

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