Federal Student Loan Interest Rate Set to Double

By | May 10, 2012

BOILING SPRINGS (Source: Jordan-Ashley Baker The Star, Shelby, N.C.  — Emily Lail dreamed of earning her doctorate and conducting groundbreaking research about the gene that causes autism.

But with thousands of dollars in student loans piling up, Lail might drop out of Appalachian State University before she has the chance to earn her undergraduate degree.

Lail, 22, owes $26,000 in federal Stafford loans. With the interest rate on Stafford loans set to double in July, the 2008 Crest High graduate can’t afford the additional debt. She made the painful decision to drop out of school if the interest rate of federally subsidized Stafford loans increases from 3.4 percent to 6.8 percent.

The additional debt from increasing interest rates would be too much for Lail to manage, she decided.

“I’m kind of on standby,” Lail said. “… If this does go through, I can’t afford to go back to college.”

The increase in Stafford loan interest rates will affect about 7 million students and cost each student an average of $1,000 over the life of their loans, according to the White House website.

Lail said she already owes about $36,000 from her Stafford loans and other student loans to help pay for her college expenses. The higher interest rates mean she could owe a lot more, she said.

‘How much are you willing to go in the hole?’

Subsidized Stafford loans are federal loans given to students based on financial need. Students aren’t required to pay back the loans until they complete schooling, and the federal government pays the interest in the meantime, according to Alexandra Forter Sirota, director of the N.C. Budget and Tax Center.

Lail, like millions of other students, took advantage of the Stafford loans to help pay her college expenses. She started college as an elementary education major, but then changed her course of study to psychology. She now has one school year left in college before earning her undergraduate degree.

The change in interest rates isn’t retroactive and doesn’t affect current Stafford loans, Sirota said. But students who take out Stafford loans in the future will be paying the higher interest rate.

“You have to ask, ‘How much are you willing to go in the hole to educate yourself?’” Lail said.

Senate action?

Five years ago, a Democratic congress enacted a bill that kept the Stafford loan interest rates at 3.4 percent until doubling to 6.8 percent for the 2012-13 school year. Sirota said the bill was passed as the financial crisis hit in an effort to make post-secondary education affordable for American students.

If nothing changes, the rates will automatically double July 1.

The U.S. House of Representatives voted 215-195 on April 27 to extend current interest rates on the Stafford loans and prevent the rates from doubling in the coming months. The Associated Press reported that both Democrats and Republicans say students’ interest rates shouldn’t increase, but the parties disagree about how to pay for that $6 billion difference. Republicans want spending cuts and Democrats prefer higher revenues, according to the AP.

“The goal would be to see a similar effort on the Senate’s side,” Sirota said. “… With the impending change coming quickly, congressional action would need to be pretty quick.”

Congressman opposes rate increase

U.S. Rep. Patrick McHenry, R-District 10, is opposed to the sudden increase on Stafford loan interest rates, according to McHenry’s chief of staff, Parker Poling.

McHenry, however, doesn’t agree with government involvement in student lending.

“He has long been opposed to government control of student lending and the government takeover of student lending,” Poling said.

McHenry didn’t actually vote on the measure when it came before the U.S. House of Representatives because he was at a funeral, Poling said.

“How many kids are going to have to stop (attending school)?” Lail wondered.

She knows she isn’t the only student affected by potentially higher student loan interest rates. But that doesn’t make the reality any easier.

President Barack Obama’s budget request for next year includes a proposal that, if approved by Congress, would maintain the current 3.4 percent interest rate on new undergraduate subsidized loans made for the 2012-13 school year, according to the U.S. Department of Education.

Lail is in limbo until lawmakers reach a decision about the increasing interest rates. She studies for her final exams at Appalachian State and hopes they’re not the last of her college career.

Lail talked with representatives from area community colleges about the possibility of transferring her college credits to their campuses. She has already started chipping away at her debt by paying back “$20 here and there.”

“Every little bit helps,” she said.

The Associated Press contributed to this report. Reach reporter Jordan-Ashley Baker at 704-669-3332.

___

�2012 The Star (Shelby, N.C.)

Visit The Star (Shelby, N.C.) at www.shelbystar.com

Distributed by MCT Information Services

Source: Jordan-Ashley Baker The Star, Shelby, N.C.

One thought on “Federal Student Loan Interest Rate Set to Double

  1. Brandon Barrios

    This article is pure clap trap and much of it is inaccurate information. I’m a 2008 college graduate and none of my stafford loans were ever anywhere close to 3%. They were 6% throughout my entire college career you phony clowns writing this article. Neither can I believe that a near senior college student just months of study short from graduating is ready to drop out because she’ll have to pay what comes out to an extra couple bucks a month in student loans. Nothing but nonsense here.

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