Lower interest on one college loan... for now

By David Pilley on July 11, 2012

Back in April, President Barack Obama came to my alma mater to talk about education. He empathized with students on the struggles to pay back college loans, saying he and wife Michelle “got poor together.” He called on students to use the social media site Twitter, raising awareness by sending messages with the tag “Don’t Double My Rate.” If Congress did not act by June 30, new subsidized Stafford Loans would have the same interest rate, 6.8 percent, as their unsubsidized portions. Could Congress get over their political squabbles and actually get something done?

Yes, they did! The House of Representatives passed a bill on June 28, continuing the subsidizing of some Stafford Loans. The portion of a student’s Stafford Loan that will be subsidized will have an interest rate of 3.4 percent. The House voted 373 to 52 – all 52 nays were Republican – and the Senate passed the bill by a vote of 74 to 19. The bill is good for one year, meaning subsidized Stafford Loans will have their interest rate go up to 6.8 percent if nothing new is passed by June 30, 2013.

Like every piece of legislation created in Washington, the bill doesn’t simply deal with student loans. The main part of the bill deals with transportation, as over $100 billion will fund highway projects for two years. Much of the measure was financed by extending federal taxes on gasoline and diesel fuel. A loophole was tightened to make it harder for business with “roll-your-own cigarette” machines to classify their tobacco as “pipe” tobacco, which has a lower tax rate than “cigarette” tobacco. Federal flood insurance programs were extended, allowing higher premiums and limiting subsidies for vacation homes. One provision would also order the government to speed up its plan on preventing Asian carp from entering the Great Lakes. Student loans and foreign fish. That’s Congress!

Still, not all is hunky-dory with student loans. The bill did not extend government payment during the grace period, meaning interest will now accrue during the six-month period you do not have to pay back the loan. There are also no subsidized loans available for graduate students, so more interest for them! Finally, to qualify for zero family contribution, your family’s income can be no greater than $23,000, down from $32,000.

This bill does not solve the problem of ballooning student debt. The Stafford Loan is only a portion of a student’s aid, and it doesn’t even have the highest interest rate of all the federal loans. That would be the PLUS loan, whose interest rate is 7.9 percent. Average college students will have about $1,000 less to pay back. However, they’re still graduating with an average of about $25,000 to pay; students at private schools may pay twice or thrice this amount. Graduate students no longer have subsidized loans available to them, so their debt will go up, as colleges will raise their tuition. You see, interest is not the real problem. The real problem is the fact that college tuition has nearly doubled in the past 20 years, and it keeps going up every single year! The cost of tuition directly affects how much a student has to take out in loans, and it directly affects how much interest the student has to pay back, regardless of whether the interest rate on a portion of one type of loan is kept low or not.

Whoever the President is next year, he will have to deal with this issue again. The interest rate on subsidized Stafford Loans will go back up to 6.8 percent on June 30, 2013. Many people will be worrying more about where the money comes from to pay for school instead of worrying about the information being taught in their college courses. Many people will be dropping out because they can’t afford tuition. Many people will still be unemployed after getting their college degree. Many people will default on their college loans. The problem of unaffordable college loans will not go away unless SCHOOLS STOP HIKING THEIR TUITION EVERY SINGLE YEAR. Just as limiting cups sold in New York restaurants to 16 ounces does not solve the problem of obesity, keeping a low interest rate on a portion of one federal loan does not solve the problem of student debt. It was nice to see both political sides work together for this bill, but they need to work harder to prevent the student loan bubble from bursting.