While you’ve been (rightfully!) freaking out about the slew of harmful bills making their way through the North Carolina General Assembly, college Freshmen have been freaking out about increased interest rates on student loans. When Congress failed to come to an agreement before July 1, interest rates on subsidized Stafford loans doubled from 3.4 to 6.8 percent. That means 7 million teenagers will arrive at college campuses next month with an extra $2,600 in debt.
For those of you who don’t know or don’t remember, government-subsidized Stafford loans are awarded to students with demonstrated financial need. About two-thirds of Stafford loan recipients (or their families) earn a gross annual income of less than $50,000 a year. By failing to arrive at a bipartisan resolution on interest rates, Congress has placed an additional financial burden on the people with the largest financial burden. How do you figure?! Forget scholarships from the private sector; there aren’t enough to go around. Thirty-one percent of all undergraduate students relied on Stafford loans to pay for at least a portion of their tuition during the 2011-2012 academic year.
Congress luckily realizes the gravity of the situation and has been working hard to fix it—although their efforts have not yet resulted in action. Republican and Democratic leaders have been, in the words of Representative John Kline of Minnesota, “completely unwilling to compromise.” With only one month until school starts, the only solution remotely palatable to both parties would combine parts of a Republican House bill and parts of President Obama’s budget proposal. This combination would tie Stafford loan interest rates to the financial markets. Once called completely unacceptable by Senate Democrats, the idea of linking student interest rates to the economy has reentered the discussion. In the short term, this linkage would save students money. In the long term, linking student interest rates to the economy as the economy improves would cause student interest rates to rise above 6.8 percent. Not cool.
Stay tuned for “Student Loans: Apocalypse Averted,” or else look for me crying into my ramen noodles and selling my stuff on EBay.