Student Loan Rate Doubles Amid Congressional Inaction

angie platt university iowa college student loan interest rates congress
Ryan J. Foley/APUniversity of Iowa student Angie Platt, 20, says the increase in interest rates for subsidized Stafford loans will add to her debt load, expected to top $60,000 by the time she graduates.

WASHINGTON -- College students' interest rates are at the mercy of Congress.

The interest rates on subsidized Stafford loans doubled from 3.4 percent Monday and could stay doubled unless Congress fulfills its pledge to restore lower rates when it returns from the Fourth of July holiday.

Lawmakers from both parties, as well as the White House, vowed to lower that rate before students started signing loan documents this fall. But the rate now stands at 6.8 percent -- higher than most loans available from private lenders.

"In the grand scheme of all the loans that I already have, I suppose it's not out of control," said Angie Platt, a 20-year-old University of Iowa student who expects to graduate with at least $60,000 in debt.

"It's just another thing to add on. It doesn't help me, that's for sure," the Lakeville, Minn., native added.

Efforts to keep interest rates from doubling on new subsidized Stafford loans fell apart last week amid partisan wrangling in the Senate. Democratic senators and the White House both predicted a deal would be reached in Congress to bring the rates down again before students return to campus.

But if an agreement remains elusive, students could find themselves saddled with higher interest rates this year than last. Congress' Joint Economic Committee estimated the cost passed to students would be about $2,600.

"It's kind of surprising -- that's a big jump," said Rebecca Ehlers, an Iowa State University senior majoring in math.

A $1,000 subsidized Stafford loan is part of her financial aid package and she said she's reconsidering how she pays for school.

"I may work more or ask my parents for money rather than going through all that," said Ehlers, 21.

She -- like millions of others who use federal student loans to pay for their education -- has some time before she has to make that decision. But not much.

"The only silver lining is that relatively few borrowers take out student loans in July and early August," said Terry Hartle, a top official with colleges' lobbying operation at the American Council on Education. "You really can't take out student loans more than 10 days before the term starts."

But that is little consolation for students looking at unexpected costs waiting for them on graduation day if Congress doesn't take action before it breaks again for the month of August.

Shifting Blame

Students only borrow money for one school year at a time. Subsidized Stafford loans taken before Monday aren't affected by the rate hike, nor are federal PLUS, Perkins or unsubsidized Stafford loans slated for the coming year.

"We're telling members to advise students that interest rates are going up," said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

Subsidized Stafford loans go to needier students and often are coupled with other types of lending. Those loans make up roughly one quarter of all direct federal borrowing.

Both political parties tried to blame the other for the hike and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country.

Lawmakers knew for a full year the July 1 deadline was coming but were unable to strike a deal to dodge that increase. During last year's presidential race, both parties pledged to extend the 3.4 percent interest rates for another year to avoid angering young voters.

But the looming hike lacked sufficient urgency this year and Congress last week left town for the holiday without an agreement. Instead, the Democratic-led Senate pledged to revisit the issue as soon as July 10 and retroactively restore the rates for another year -- into 2014, when a third of Senate seats and all House seats are up for election.

At the White House, a spokesman predicted a deal could be reached before students return to campus.

"We are confident they will get there and that the solution will include retroactive protection for students who borrow after July 1 so that their student loan rates don't double," Matt Lehrich said.

Even when lawmakers return, there's no guarantee there will be the votes to restore the lower rates. Efforts last week to reach a bipartisan agreement fizzled and there have been few examples of meaningful compromise in Congress.


Associated Press writers Ryan J. Foley in Iowa City, Iowa, and Stacy A. Anderson in Washington contributed to this report.

Increase your money and finance knowledge from home

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

So please tell me why I should be subsidizing lower interest rates for someone else's college loan? I don't remember anyone subsidizing mine?

July 02 2013 at 7:00 PM Report abuse +2 rate up rate down Reply
1 reply to Chuck's comment

What rate is the US government borowing 10 year money at? Where is any taxpayer subsidy. At 6.8% the taxpayer is making a KILLING.

July 02 2013 at 7:40 PM Report abuse -1 rate up rate down Reply

Why don't we just change the name of the November General Election to "Elect-a-Clown Day".

July 02 2013 at 6:11 PM Report abuse +3 rate up rate down Reply

Just more GOP circus show and do nothing congress - pathetic, would rather arms rebels in syria

July 02 2013 at 4:57 PM Report abuse -7 rate up rate down Reply

Students saying gimme come on we bailed out Goldman CITI WITH 0.07% RATES we can`t give students of working families a better rate than 6.8%, car and home loans are more reasonable

July 02 2013 at 4:34 PM Report abuse rate up rate down Reply
1 reply to buft19thomas's comment

Because they aren't paying for the lower rates, I am. And the students didn't bail out Goldman Saks, I did. So, I say if they want to go to college, let them pay the going rate like I did.

July 02 2013 at 7:02 PM Report abuse +2 rate up rate down Reply

the U.S. CONGRESS-- the absolute worst group of politicians anywhere at anytime...totally worthless club of greedy, self-******* imbeciles anywhere...we would be so much better off with an all volunteer congress with no pay and/or benefits...then the country would accomplish something for the regular people not just the bribers..

July 02 2013 at 4:17 PM Report abuse +1 rate up rate down Reply
1 reply to stevendy1's comment

How about TERM LIMITS for a start. Two four year terms for the House and two six year terms for the Senate max 12 lifetime years??? Sound Like a good start.

July 02 2013 at 7:45 PM Report abuse +2 rate up rate down Reply

Congress has not been able to pass anything that matters, like our future's education in this instance. Too busy trying to take womens right to choose away, or protecting lack of regulation for guns and bullets but trying to regulate women's bodies.

July 02 2013 at 4:13 PM Report abuse -3 rate up rate down Reply
1 reply to itala2's comment

I'll bet you can't name three things that congress has passed at all, because you are a know nothing parrot. So when you look this up, make sure you look at the 20+ jobs bills that reid is afraid to bring to the floor of the senate.

BTW....women's right to choose what?

July 03 2013 at 12:32 AM Report abuse rate up rate down Reply

lets face it congress don't give a crap anything but their self, If it was about a pay raise for themself it would have been the first thing they did,and aprove it time to replace all of these a holes and there free rides

July 02 2013 at 4:10 PM Report abuse +5 rate up rate down Reply
1 reply to Al's comment

It is not the job of Congress to take my money to lower your college loan rate. You wanted the loan, you pay the rate.

July 02 2013 at 7:04 PM Report abuse +2 rate up rate down Reply

The best way to resolve this issue is to get the cost of a college education under control. Since they know the students will beg/borrow/steal to pay and the gov't provides grants and loans, they have zero incentive to control the costs.

Now you know how they are able to pay people like Gen. Patreaus 200k a year to teach one 3hr class a week.

July 02 2013 at 4:02 PM Report abuse rate up rate down Reply
1 reply to Dave's comment

Buy lowering the loan rates, by stealing money from me, the colleges know they can raise thier rates because people can now afford larger loans. If the rate is 6%, pay 6%. If you can't affor it, then the colleges will have to lower their tution or they lose a student.

July 02 2013 at 7:07 PM Report abuse +1 rate up rate down Reply

Banks should get back into student loans,right now there giving parents and grand parents 0.25 on their CD. Banks could make the 0.25% and the CD holder the 3.00% off of the student loans.

July 02 2013 at 3:44 PM Report abuse +1 rate up rate down Reply

Ever notice that any bill that will help the American people never gets through congress, while pet projects do. Just saying.

July 02 2013 at 3:44 PM Report abuse +5 rate up rate down Reply
1 reply to GOD's comment

How does stealing money from me, to lower sonmeone else's college rate, help me?

July 02 2013 at 7:08 PM Report abuse rate up rate down Reply