Students brace for higher rates
With interest rates on a popular form of student loans set to double July 1, Congress and the Obama administration appear locked in a stalemate over how to fix the problem.
Unless Congress and the administration act, rates on new subsidized federal student loans will go from 3.4 percent to 6.8 percent. Subsidized loans, unlike unsubsidized loans, do not accrue interest while students are enrolled.
The new rates would not affect existing loans.
Among those at the center of the controversy is U.S. Sen. Tom Coburn, who co-authored a bill that would peg all student loan rates to 10-year Treasury notes. That bill failed a vote Thursday that would have brought it to a final vote.
A similar vote on a Democrat-backed bill to freeze loan rates at current levels also failed to get the 60 votes required to advance.
The Obama administration and the Republicanled House also propose pegging student loan rates to Treasury notes, but the Coburn and administration versions fix individual loans at their original rates, while the House version calls for annually adjusted, variable rates.
“An interest rate tied to market rates is better than an arbitrary rate set by Congress,” said Coburn spokesman Aaron Fobes. “Dr. Coburn’s bill is pragmatic — it bridges the House version of the bill and the president’s version.”
None of it is new, said Matt White, assistant director of financial aid at Oklahoma State University, but all of it is maddeningly confusing.
“We’ve been through versions of all this before,” said White. “The devil is always in the details, and there have been a lot of details.”
The basics
Four basic types of loans are available to undergraduates: subsidized, unsubsidized, parent and private. The first three are through the federal government with interest rates now set at 3.4, 6.8 and 7.9 percent, respectively.
Private loan rates are set by the lenders.
Coburn’s bill would peg all federal loans — subsidized, unsubsidized and parent — to Treasury notes, meaning the interest rate would be the same for all three.
Because interest rates are low now, in the short term that would cause rates to rise slightly for subsidized loans but go down for unsubsidized and parent loans.
Student advocates, though, say interest rates are likely to rise over time, meaning all rates will increase in the long term.
Some have said it would be better to let the current lower rates for subsidized loans lapse than tie them to market rates.
This gets to a fundamental disagreement over the purpose and function of student loans.
Student advocates generally say loans should exist to provide affordable access to higher education, and thus interest rates should be kept artificially low.
Others, including Coburn, disagree.
Tuition rising as well
While most educators say declining state support of public higher education is the main driver of higher tuition and attendance costs, many observers, especially conservatives, blame the infusion of ready cash through lowinterest student loans and government tuition subsidies.
“Dr. Coburn has repeat- edly said, ‘The best way to make something expensive is for the government to make it affordable,’ ” said Fobes “Perhaps nothing demonstrates this best than skyrocketing tuition rates.
“As the federal government has pumped more money into higher education, colleges and universities have simply raised their prices accordingly. The very thing that was meant to control costs has caused tuition rates to rise.”
Low level of debt
White said students at OSU and most other Oklahoma public institutions have relatively low debt levels and won’t be affected as much as those at more expensive colleges and universities.
“I don’t think we’re talking about tens of thousands of dollars over the course of the loan,” he said. “I think we’re talking about thousands or maybe hundreds.”
According to figures supplied by the White House, about 85,000 outstanding subsidized loans were made through Oklahoma institutions with a total value of $304 million, or about $3,600 per loan.
Statistics from the U.S. Department of Education show 36 percent of OSU students take out some type of loan, with an average loan of less than $4,000.
At the private University of Tulsa, 42 percent of this year’s graduating class had some type of student loan and had borrowed an average of $26,293.
Law school graduates had borrowed on average more than $103,000.