Next week’s deadline is looming for congress to determine if student loan borrowers across the country will be even more burdened by debt.
Congress has until July 1 to stop interest rates on undergraduate unsubsidized Stafford student loans from rising 6.8 percent from 3.4 percent. The Washington Post reported Tuesday afternoon that top Senate officials had reached an agreement.
Subsidized loans are awarded based on financial need, and any interest that’s accrued while the student is enrolled at least part-time is paid by the government.
More than 3,000 TCU undergraduates took out a Stafford loan last year, for a total of $21.2 million in subsidized and unsubsidized loans, said Mike Scott, director of financial aid.
The interest rate was lowered through the College Cost Reduction and Access Act of 2007. But the act only covers four academic years. Without an extension the subsidized interest rate will revert back to the 6.8 level that was in place prior to the act.
Scott said that although he has continuously seen interest rates go up during his 25 years in his field, he has never seen it come this close to actually doubling.
However, 6.8 percent is not an “unreasonable” interest rate, and is similar to the interest rate on financing a house or buying a car, Scott said.
Scott believes that because of the upcoming election year, both Democrats and Republicans are pushing toward keeping the rate low, he said.
"Neither one of them wants to be the one that lets student loans go up when students are an important voting block to both parties," Scott said.
The current argument between the two parties is how to pay for a solution, Scott said.
In April, Democrats introduced the “Stop the Student Loan Interest Rate Hike Act of 2012” sponsored by Massachusetts Congressman John Tierney, as an attempt to bring congress to a decision. The act kept interest rates on Stafford loans low by ending tax subsidies to big oil and gas companies.
The act failed to be approved by Senate (52-45) because Republicans of the house did not agree with the method.
The 6.8 percent interest rate is slightly higher than the College Application Loan (CAL) but is still lower than rates on the Parent Plus Loan, Scott said.
“It’s not out of line with those other loans," Scott said. "It's just that it’s a bigger change and the Stafford loan has also been the basic loan and you want to keep that as affordable as possible.”
For 2005 TCU graduate Colin Burns, who just finished paying off his loans from his degree, the rate of 6.8 is a determining factor as to whether or not he will pursue an MBA.
"The change in the interest rate could mean thousands of dollars of interest on my forthcoming student loans," Burns said. "The possible change in interest rates changed my decision on where to apply, let alone attend, because of the fear of what it could do to my loans."
After putting together a calculation of funds for his MBA, borrowing $25,000 could mean paying an extra $5,000 in interest, if the rate is hiked, which is significant, Burns said.
Anytime something changes with a student loan program you have two sides of that argument, and they are whether to set priorities on subsidies and directing funding towards students who are already out of school or on those who are still trying to get their degree, Scott said.
"It's kind of a two-edged sword," Scott said.