Student loans rates to double on July 1
Student loan interest rates on subsidized Stafford loans are set to double on July 1 from 3.4 percent to 6.8 percent. This could wind up costing students an additional $1,000 over their four years of taking out college loans. Congress has been pressured by various organizations, including the Illinois Student Senate, to act to ensure that students don’t get stuck with the higher rates.
Even though the deadline of July 1 is likely to pass without action, Congress could still figure out a deal before students are forced to sign up for their loans when the fall semester starts in August.
Student Senator Tony Fiorentino said there is a student debt crisis in America’s colleges, and while it’s important that students avoid paying double the interest rate, the issue of loan interest rates is merely a “superficial symptom” of a larger problem. That is to say, the rates are not the crisis, just one of its side effects.
Fiorentino does believe the immediate issue of interest rates is critical for students. Fiorentino said ISS supports Senator Elizabeth Warren’s (D-Mass.) newly proposed plan that would tie Stafford loan interest rates to the rate at which banks borrow from the federal reserve. The plan would mean a decrease from a 6.8 percent interest rate to a 0.75 percent rate.
Warren’s plan has garnered a lot of support from students and college administrators, but still faces an uphill battle in Congress.
“It’s not very popular,” Fiorentino said. “In fact, it’s as unpopular in Congress as it is popular with students.”
Other proposed plans include a one-year extension of the current interest rates, like the one-year extension Congress passed last year with the deadline approaching; a permanent extension of the current rates; and tying interest rates to market rates. Fiorentino said the latter plan, which has been proffered by President Barack Obama, is “upsetting” in light of the fixed-rate deal the banks get from the federal reserve.
In an effort to spark change, Fiorentino and the Illinois Student Senate is planning to launch a student debt awareness campaign in the fall in an effort to better inform the student body about the “predatory lending system” into which students enter when they take out loans to pay for school.
“What you have is a system where it is more profitable for student loan corporations and student loan guarantors, and also the Department of Education, when the student defaults on their debt, rather than when they keep their debt in good standing,” Fiorentino said.
Fiorentino and other ISS members have been regularly meeting with members of Congress to talk about the student loans. The issue of interest rates is something of a jumping-off point, Fiorentino said, of a much larger conversation.
“In an immediate sense, the doubling of the interest rates have been a great opportunity, a way for us to get in the door to have a much larger discussion about systemic failures when it comes to student loan policies,” he said.
Those “systemic failures” include a lack of bankruptcy protection, which every other kind of loan has, and the lack of a statute of limitations, which allows collection even more than 50 years after the loan is taken out.
ISS has met with Sen. Dick Durbin and Reps. Jan Schakowsky (D-9), Bill Foster (D-11), Tammy Duckworth (D-8), Rodney Davis (R-13), Peter Roskam (R-6), Randy Hultgren (R-14) and Bill Enyart (D-12), and will continue to meet with more lawmakers in the future, including Brad Schneider (D-10) and Bobby Rush (D-1).
Fiorentino said these meetings have, for the most part, gone poorly.
“I get the sense that though Congress members are living in a very rarified, distant world, I think many of them don’t understand what it’s like,” he said.
An exception to this has been Sen. Durbin, Fiorentino said, who came out against the forthcoming doubling of interest rates.
“I think that is fundamentally unfair,” Durbin told reporters in a news conference in June. “Student debt is the fastest growing debt in America. We have more student debt than credit card debt in this nation. It is only eclipsed by mortgage debt in terms of the total debt packages, and it’s growing fast.”
While Durbin has been supportive of their cause, he lies in the minority among lawmakers.
“We’re working with Senator Durbin, but by and large, we would say the response from Congress has been disappointing, to say the least,” Fiorentino said.
He said the reason lawmakers are so willing to back high interest rates is because the banks who lend to students are donating money to fund campaigns, and in return expect legislation that keeps interest rates high. Fiorentino said the only way to topple this systemic alignment is for students to come out in numbers and show support for fundamental change within the student loan system.
“They’re not gonna do anything until they see students in the thousands coming out and demanding economic justice,” Fiorentino said.
Eliot can be reached at firstname.lastname@example.org and @EliotTweet.