Flunking Student Loans 101

student-loans-230x300It’s pretty certain that, starting Monday, the interest rate on new federal student loans will double. The 3.4 percent interest rate on Stafford Loans will increase to 6.8 percent, effective July 1, because no one in either chamber of Congress, nor President Obama, could find a way to prevent it.

There’s still hope that Congress could do something, at least as a stopgap, once they return from the Fourth of July recess.

But the likely solution will be a kick-the-can scenario — hold rates steady for another year — and the result will be increasing uncertainty.

If nothing happens, the rate hike will hit some 7 million college students taking out new loans this summer and fall. Those who already have student loans under the current rate won’t be affected.

Typical gridlock?

Why couldn’t Congress keep this from happening? Just your typical political gridlock in D.C.

As The Daily Beast explains, “The fight over student loan reform has been mired in a typical Capitol Hill standoff. One chamber has passed legislation, and the other is waging an ideological showdown in hopes that the other side blinks.”

The Republican-controlled House passed student loan legislation, but the Democratic-controlled Senate isn’t going along with it. The House version would let rates float on the market, so the reasoning against their bill is that a fixed rate, even at double the current level, is better than a floating rate that could rise to an even higher level, depending on market conditions.

Meanwhile, student loan debt is approaching crisis level.

“America’s young adults face a treacherous road ahead, and it’s clear that student loans are exacerbating the problem,” writes Terri Ludwig in a HuffPost College article. “Lawmakers in Washington should be careful not to make matters worse.”

My prediction: Congress will pass legislation to extend the 3.4 percent rate for another year, then ignore it for 11 months until it’s time to try to address the issue once again. The political football will be punted, and Congress and the Obama administration flunk Student Loans 101.

Photo via The Money Update.

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Author: andrewcareaga

Higher ed PR and marketing guy. Communications director for Missouri University of Science and Technology (Missouri S&T) in Rolla, Missouri, USA. Slow runner, mediocre guitarist, lover of music and puns, and an avid St. Louis Cardinals fan. I blog and Tweet about #highered, #music, #gocards and #random stuff.

3 thoughts on “Flunking Student Loans 101”

  1. Thank you for writing an article on this topic that actually gets the facts correct (not that I would expect anything less from you!). This is a big deal because it will affect millions of new loans, but most of the articles I’ve been reading lately make it sound like everyone’s fixed rate federal loans will magically double.

    (Disclosure: I work for a student loan servicer, but these opinions are my own)

  2. My opinion is that people are responsible for their actions. I joined the military instead of getting a loan for college.
    However, I think the interest increase should only be for new loans, existing loans should remain under the conditions agreed by both parties.

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