Schumer pushing to stop student loan rate increase
OBSERVER Staff Report
With a deadline of June 30, interest rates for the federally-subsidized Stafford loans may double if Congress does not take action. Senator Charles E. Schumer recently launched his fight to stave off this interest rate increase.
This interest rate increase for student loans could raise the cost of attending college for tens of thousands of Upstate New York students and their families. Unless Congress takes action quickly, the interest rates on federally-subsidized Stafford loans will double on July 1 from 3.4 percent to 6.8 percent, which could add thousands of dollars in interest payments to the cost of attending college. The rate increase would not apply to loans that are currently in repayment or that have already been disbursed, but rather new loans that will be disbursed after July 1. Students still attending school after July 1 that need to take out new federally-subsidized Stafford loans would pay higher rates on the new loans only, adding to their already stacking debt.
In 2007, Congress lowered the rate on federally-subsidized Stafford loans – currently held by about 285,000 students in Upstate New York colleges and universities. In Western New York, more than 60,000 students receive Stafford loans including 1,293 students at Jamestown Community College and 3,464 at SUNY Fredonia.
Last year, Schumer helped lead the successful effort in Congress to freeze interest rates for need-based federal student loans, preventing them from doubling for a year. Schumer will vow to join the lead sponsor Senator Jack Reed (D-RI) in bringing the Student Loan Affordability Act of 2013, to the Senate floor before the “doubling deadline.”
“The cost of college is already skyrocketing and there is no sense adding insult to injury by allowing the Stafford loan rate to double, piling additional costs on students and families,” Schumer said. “Congress needs to come together to extend the rate at its current level, so that more students in Upstate New York can walk across the stage and receive a diploma in the coming years, not less. It’s time we do more to invest in our students, not less.”
Stafford loans are offered on the full faith and credit of the United States government and, thus, are offered at a lower interest rate than they would be privately. To receive Stafford loans, students must meet rigorous need requirements. Freshmen are eligible for loans up to $3,500, sophomores are eligible for up to $4,500, and juniors and seniors may receive loans up to $5,500 for each of the last two years of school. Loans are not expected to be paid back while the student is enrolled in college or for a six-month grace period afterward. The federal government pays the interest for the period that the student is in college, unlike unsubsidized Stafford loans.
The Student Loan Affordability Act of 2013 will maintain the current interest rates for the next two years as Congress works towards a long-term solution in the re-authorization of the Higher Education Act. The cost of this bill will be offset by closing tax loopholes. Schumer is intent on ensuring that the offsets for this bill did not come from other already strapped education programs. At a time when student loan debt is second only to mortgage debt for American families, Schumer said that we cannot ask families to add to this debt by allowing the interest rate on need-based student loans to double.
The College Cost Reduction and Access Act of 2007 set fixed interest rates on newly subsidized Stafford loans for undergraduate students to 3.4 percent over a set period of time; 6.0 percent in 2008-2009, 5.6 percent in 2009-2010, 4.5 percent in 2010-2011 and 3.4 percent in 2011-2012.
According to information from the National Student Loan Data System, the average student who receives four years of subsidized Stafford loans would end up paying up to $3,798 more over the course of a ten-year repayment term, if the interest rate is allowed to double.
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