Student loan interest rates may double, when Congress acts
As the Central Michigan University Board of Trustees voted to raise tuition last week, student loan interest rates are set to double in the next year unless Congress takes action.
The same scenario occurred to Congress last year. However, an agreement was reached between the two parties to extend the interest rate of 3.4 percent another year. Again this year, it is likely there will be a good deal of brinksmanship before the issue is settled.Julie Wilson, assistant director of scholarships and financial aid, said her office isn’t happy about the rising rates, but it’s out of their control.
“It makes student repayments much larger,” Wilson said. “It’s basically like if gas prices doubled — nobody would be happy about that.”
The rise on interest rates will only occur on subsidized loans in the 2013-14 school year, not unsubsidized loans, which already stand at 6.8 percent.
According to the United States Department of Education, direct subsidized loans are available to undergraduate students with financial need. Whereas, direct unsubsidized loans are available to undergraduate and graduate students with no requirement to demonstrate financial need.
Wilson said subsidized loans have no interest that accrues while the student is in school. It is when students go into repayment that they start paying back the interest.
“The impact is when they graduate,” she said.
When asked if the rising interest rate would force some students to leave CMU and attend a community college to save money, Wilson responded, “I don’t have an answer to that.”
The increase in the interest rate will have no impact on scholarships or financial aid, Wilson said.
Shawna Small takes student loans and said a potential increase in interest rates is ridiculous.
“Students like me who have gotten accepted for student loans every year of college…are already very much in debt,” the Novi senior said. “The last thing I want is to pay more than I can afford when the time comes.”
According to finaid.org, a student who has $20,000 in subsidized loans would pay back $3,620 over 10 years at the current 3.4-percent level. However, at the 6.8-percent level, that repayment number rises to $7,619.
Rodney Harris also has student loans and is not happy with the potential increase.
"The increase of interest rates are never good for students, since many of us are already so much in debt,” the Canton junior said.
A February report from the Congressional Budget Office said the federal government profits 36 cents on every student loan dollar it puts out, the New York times reported.
It is estimated that student loans will bring in $34 billion to the government next year.
“The government should be looking at ways to make college more affordable, instead of profiting even more from interest rates,” Harris said.