The interest rate on federally subsidized Stafford loans is set to double, from 3.4% to 6.8%, on July 1, which would affect 7 million students, according to Arne Duncan, the U.S. Secretary of Education. If the interest rate doubles, students would incur an average of $1,000 more in loans at a time when student debt is more than $1 trillion, an all-time high, according to The New York Times.
The Stafford loan interest rate was lowered to 3.4%, from 6.8%, in 2007 when Congress passed the College Cost Reduction and Access Act, a bill that had some bipartisan support. Now the Obama administration and congressional Democrats are ramping up their efforts to prevent the interest rate from returning to what it was before.
"At a time when college has never been more important, it also, unfortunately, has never been more expensive," Duncan said at a White House briefing. "Our administration is doing more than ever before to address it."
President Barack Obama is touring universities this week to talk about the issue, and the White House started a campaign on Twitter using the hash tag #DontDoubleMyRate. On the legislative level, two bills have been introduced to the House of Representatives and the Senate that would freeze the interest rate at 3.4% for one year. But Republicans, such as John Kline Jr., the House Committee on Education and the Workforce chairman, are not so keen on the idea.
"We must now choose between allowing interest rates to rise or piling billions of dollars on the backs of taxpayers," Kline said in a press release. "I have serious concerns about any proposal that simply kicks the can down the road and creates more uncertainty in the long run — which is what put us in this situation in the first place."
The Congressional Budget Office (CBO) states that, if the interest rate remains at 3.4% until July 2013, it would cost the government $6.7 billion. The decreased interest rate has already cost the government an estimated $7.2 billion, which was absorbed by loan-guarantors and lenders, from 2007 to 2012, according to The Chronicle of Higher Education.
"Bad policy based on lofty campaign promises has put us in an untenable situation," Kline said.
However, in a time in which the cost of tuition continues to increase, Duncan said the introduced bills should have bipartisan support because the issue is about keeping education affordable.
"We need to fix it now, we have an immediate crisis," Duncan said. "I could care less about politics and ideology … We need an educated work force."
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