Interest rates on federally subsidized student loans officially double

posted at 9:21 pm on July 1, 2013 by Erika Johnsen

In the summer heat of the election last year, Congress passed a one-year extension on keeping the interest rate for federally subsidized Stafford loans for college students at the artificially low rate of 3.4 percent — and the sand finally ran out on that temporary stopgap today, hiking the rate up to 6.8 percent. Republicans have been proposing to link students loan rates to the freer financial-market benchmarks instead of allowing Congress to arbitrarily determine what they deem to be an appropriate rate, while Democrats are looking to keep the interests rates as low as they in their infinite wisdom see fit. There’s still a possibility that Congress could pass some kind of deal in the near future, but an agreement isn’t looking likely, via Fox News:

President Obama included a variation of that market-based approach in the budget he sent to Congress earlier this year, leaving his fellow Democrats trying to block his efforts.

“Why Senate Democrats continue to attack the president’s plan is a mystery to me, but I hope he’s able to persuade them to join our bipartisan effort to assist students,” Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell, said last week

Senate Majority Leader Harry Reid said that a proposal to tie loan rates to the 10-year treasury note yield could never pass the Senate and that he couldn’t back something that doesn’t include stronger protections for students and parents.

“There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families, instead of closing tax loopholes for the wealthiest Americans and big corporations,” Adam Jentleson, a spokesman for Reid, told Fox News last week. “Senate Democrats continue to work in good faith to reach a compromise but Republicans refuse to give on this critical point.”

Er, we shouldn’t reduce the deficit on the backs of students and the middle class? How about we shouldn’t be continually growing the deficit, the consequences of which will eventually fall upon students and the middle class? Anyone?

Is this particular hike on certain student loans really such a bad thing, however, for everyone involved in the long run? As Neal McCluskey points out at Cato, the federal government’s interference is directly responsible for a lot of the massive tuition inflation that’s been going on in recent years:

In the long term, it might actually be good if these rates – which will only affect some federal borrowers – go up. (Congress could still lower them retroactively.) Why? Because federal aid has fueled decades of rampant price inflation, giving basically anyone whom a college would accept – and many colleges will accept anyone – the money necessary to pay sky-high prices. Perhaps the rates rising will dissuade some people from going to college who should be doing something else, or some people going to college who should be there from choosing a more expensive school that offers no better academics but lots of superfluous frills.

Although the uptick likely won’t have a major effect on too many consumers’ choices, higher interests rates could perhaps dissuade some potential students from taking on the costs, and force institutions to streamline their budgets and/or the market to diversify with more and more efficient and practical education options.


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Time to bring the tuitions down.

Barred on July 1, 2013 at 9:32 PM

Good. I paid off my student loans within 3 years of graduation.

Jeddite on July 1, 2013 at 9:34 PM

I remember a time when my student loan wasn’t through the Federal Government…

Is that still an option?
/

Electrongod on July 1, 2013 at 9:37 PM

Is this only on new student loans or on current loans out there already?

philoquin on July 1, 2013 at 9:40 PM

You mean kids might actually have to work GASP while they go to school. Perish the thought.

*proud member of the put myself through school club

gophergirl on July 1, 2013 at 9:42 PM

6.8% is the rate I pay on many of my Federally subsidized student loans. Get used to it, kids!

blammm on July 1, 2013 at 9:46 PM

Student loans ran about 8% in the early 90′s when I was in college.
But tution was affordable!
I opted to go an extra 2 years for my BA, work full time-no loans and had zero debt when I finished.
One of my better life choices.

Then I had friends who got useless degrees in communications,sociology et.. and did not work..lived off loans. They are still paying on them…

Barred on July 1, 2013 at 9:32 PM

Yep, I agree. It is outrageous..even junior college isn’t affordable anymore.

I look back..I had it good. I feel bad for young people today..they are screwed every which way.
Although..they voted for it. Sigh…

bazil9 on July 1, 2013 at 9:47 PM

and let’s not forget that a portion of this interest on these loans is to fund/pay for Obamacare.

EG LOL

CoffeeLover on July 1, 2013 at 9:47 PM

Just claim you’re an illegal alien.

All is forgiven.

profitsbeard on July 1, 2013 at 9:47 PM

…but JugEars promised it would be cheaper!…remember?…it WAS SO long ago!

KOOLAID2 on July 1, 2013 at 9:47 PM

gophergirl on July 1, 2013 at 9:42 PM

^5 chica..me too.
A whole other world now.

bazil9 on July 1, 2013 at 9:48 PM

You mean kids might actually have to work GASP while they go to school. Perish the thought.

*proud member of the put myself through school club

gophergirl on July 1, 2013 at 9:42 PM

You and I both..

Well..For the forth year I had to get a loan…
Mostly because I wanted to get this over with and start working again..

Electrongod on July 1, 2013 at 9:48 PM

Er, we shouldn’t reduce the deficit on the backs of students and the middle class? How about we shouldn’t be continually growing the deficit, the consequences of which will eventually fall upon students and the middle class? Anyone?

reduce…growing…it’s only words.

“I am Harry Reid, and I will decide what the meaning of words are.”

OccamsRazor on July 1, 2013 at 9:50 PM

Is this only on new student loans or on current loans out there already?

philoquin on July 1, 2013 at 9:40 PM

It’s only on new loans.

joejm65 on July 1, 2013 at 9:54 PM

Good thing I payed mine. Saps.

nobar on July 1, 2013 at 9:56 PM

^5 chica..me too.
A whole other world now.

bazil9 on July 1, 2013 at 9:48 PM

I don’t think you could do it now but I’m still amazed at how many kids don’t work while they are in school.

I carried a full course load and worked at least 24 hours a week. Sucked but I got out in 4 years.

You and I both..

Well..For the forth year I had to get a loan…
Mostly because I wanted to get this over with and start working again..

Electrongod on July 1, 2013 at 9:48 PM

I had a generous Grandma who paid for about 3 quarters which helped.

gophergirl on July 1, 2013 at 9:57 PM

You’ll have to pardon Harry Reid. Senility has consequences. Hopefully, one day, we’ll store all the nation’s nuclear waste at the “Harry YOU EARNED IT Reid Memorial Nuclear Waste Dump”.

GarandFan on July 1, 2013 at 10:04 PM

gophergirl on July 1, 2013 at 9:57 PM

Probably not. Not with the cost of tuition, housing, ect..now a days and the lack of job opportunities.

I worked 40 hrs a week or plus. Server/bartender.
Busted a$$. Saved all summer.
Lived in a small crappy apt with 2 roommates..
ate at the restaurant or cooked at home.

My goal was to not accrue debt..and I accomplished it.
But tution was affordable..
Times have changed.

bazil9 on July 1, 2013 at 10:05 PM

…but JugEars promised it would be cheaper!…remember?…it WAS SO long ago!

KOOLAID2 on July 1, 2013 at 9:47 PM

What difference, at this point, could it possibly make?

//

Solaratov on July 1, 2013 at 10:08 PM

Er, we shouldn’t reduce the deficit on the backs of students and the middle class? How about we shouldn’t be continually growing the deficit, the consequences of which will eventually fall upon students and the middle class? Anyone?

And that’s the problem, reducing the deficit is such a high priority, but never the highest priority. Everyone wants it reduced their way, and some are more willing to negotiate the specifics than others.

bayam on July 1, 2013 at 10:08 PM

But tution was affordable..
Times have changed.

bazil9 on July 1, 2013 at 10:05 PM

Community college is more expensive now then what I paid going to a Big Ten University.

Of course if companies would stop requiring a degree for entry level positions (i.e. admin assistants) the cost of college would plummet in a heartbeat.

gophergirl on July 1, 2013 at 10:12 PM

Er, we shouldn’t reduce the deficit on the backs of students and the middle class? How about we shouldn’t be continually growing the deficit, the consequences of which will eventually fall upon students and the middle class? Anyone?

reduce…growing…it’s only words.

OccamsRazor on July 1, 2013 at 9:50 PM

Um, I hate to break it to you, but the deficit has actually been shrinking over the past couple of years, not growing.

http://online.wsj.com/article/SB10001424127887324216004578483223631771366.html

cam2 on July 1, 2013 at 10:12 PM

Can’t they just print more money and help these poor college students? /

What’s coming…

The Federal Reserve Is Paying Banks NOT To Lend 1.8 Trillion Dollars To The American People

http://michaelsnyder.mensnewsdaily.com/2013/07/the-federal-reserve-is-paying-banks-not-to-lend-1-8-trillion-dollars-to-the-american-people/

Fallon on July 1, 2013 at 10:13 PM

Yep…. big Banks get 0% money from da FED…. kids….well….NOT SO MUCH

roflmmfao

donabernathy on July 1, 2013 at 10:17 PM

gophergirl on July 1, 2013 at 10:12 PM

Yep..CC is now more expensive than my university tuition back then.
Over time..I believe you and I are close in age.
Crazy…

bazil9 on July 1, 2013 at 10:17 PM

I don’t worry about this, the Dems will protect their voters and let us pay for it. Plus we will pay for it again with bubble bursts.

Cindy Munford on July 1, 2013 at 10:30 PM

Why Senate Democrats continue to attack the president’s plan is a mystery to me

Not me. Racism, straight up.

Axeman on July 1, 2013 at 10:37 PM

Good. I paid off my student loans within 3 years of graduation.

Jeddite on July 1, 2013 at 9:34 PM

Yep..CC is now more expensive than my university tuition back then.
Over time..I believe you and I are close in age.
Crazy…

bazil9 on July 1, 2013 at 10:17 PM

So you both went to state schools. Interesting.

Capitalist Hog on July 2, 2013 at 12:07 AM

I know some MD’s who pay 8.5% on their loans. How about these students quit whining about it?

nazo311 on July 2, 2013 at 12:13 AM

Um, I hate to break it to you, but the deficit has actually been shrinking over the past couple of years, not growing.

picky picky picky. the deficits since Obama came on the scene have been astronomical, reducing astronomical to merely stratospheric wasn’t the point. The debt is still growing even with the reduced deficit.

The government take over of student loans is tied to Obamacare funding and the attemps to throw every revenue mechanism at it to keep it below $1 trillion so the CBO wouldn’t cross that thesh hold as they sold it. Of course they want to show their compassion by unwinding what they’ve done. Dems own this lock stock and barrel. Because they got the repubs to delay enforcing it doesn’t change that. At the time the repubs still had hopes of scrapping the whole thing (Obamacare). Or so we were led to believe…

DanMan on July 2, 2013 at 6:51 AM

If a family of 2 both worked full time while one attended school they were already paying 6.8% to subsidize those who choose not to work while attending school.

The student loan industry has been turned on its head since Obamacare brought along full government control. Those who make money and are at a lower risk of default get a higher interest rate. Those who are at higher risk of default used to get the lower interest rate. At least now everyone is on equal footing in regards to student loan rates.

What was fair about a jobless middle aged person getting a 3.4% interest rate while a married woman who already has a good job and a husband who works pay 6.8%?

weaselyone on July 2, 2013 at 8:48 AM

Who’s that almost bald, almost grey-haired guy on the left trying to talk someone into shaking his hand?

avagreen on July 2, 2013 at 10:39 AM

Sorry kids. The politicians on Washington D.C. have been too busy figuring out how to legalize millions of people who are in our country ILLEGALLY, so they haven’t had time to worry about a little domestic issue like problems with student loan programs.

Elections do have consequences.

Please vote more carefully in the future.

wren on July 2, 2013 at 11:41 AM

I am shocked those that manipulate schools, including ridiculous compensation packages that run red – have no idea how to handle the student loan process..

I mean – according to Dingy Harry – doubling the interest rate helps students and their parents while those meddling Republicans are trying to hurt them by pegging an actual rate.

I recall Dems doing something very similar to mortgages, while blaming the Republicans and flat out lying about the triggers, products and racial mechanisms in place to create an artificial bubble, ARM’s included.

It’s always “about the children, parents, color, workers” – even when you gauge the crap out of them.

And how exactly is charging rich folks – who pay cash for college or inspire their kids to earn a scholarship – going to offset the base rate of all student’s and their loans? Oh, silly me – its that class warfare nonsense again, proposed by Millionaire Liberal Morons.

Odie1941 on July 2, 2013 at 2:11 PM

The rate doubled only for the “subsidized” loans, meaning the Fed Gov is paying the interest while the student is in school.

The rate has remained at 6.8% for the “unsubsidized” loans, meaning the loan accrues interest while the student is in school.

So, it is actually the Fed Gov that is saving money here.

Oh, and does it make sense that post-college, the “unsubsidized” former student pays interest for 10 years at 6.8% (because their parents “made too much money” while they were in school) wherein the luckier former student that qualified for “subsidized” loans pays 3.4% for 10 years?

In other words, given the student is responsible for loan repayment after college, why does one former student have to pay 6.8% while another pays 3.4% given the parents former income has nothing to do with future repayment. The 3.4% former student may be now have more income than the 6.8% former student.

This is nothing more than a skewed redistribution program.

Carnac on July 2, 2013 at 3:38 PM

What was fair about a jobless middle aged person getting a 3.4% interest rate while a married woman who already has a good job and a husband who works pay 6.8%?

weaselyone on July 2, 2013 at 8:48 AM

Exactly! The 6.8% payee is paying a ridiculously high rate for the intended purpose of compensating for the high default rate.

Social Redistribution at its finest.

Carnac on July 2, 2013 at 3:43 PM