Nicole Shepard News Editor, @NicoleEShepard
President Barak Obama is expected to sign a student loan bill into law that, for now, will lower student loan rates from 6.8 to 3.86 percent.
Congress passed the measure on July 31, tying interest rates on federal Stafford loans to the financial market. Linking the rates to the economy will keep the rates down while the economy struggles, but rates will rise with increased economic stability.
What is good for the nation may not be good for future students with this change. The Federal Reserve Board predicted, as reported by Time magazine the first week of August, that the United States will see within the next three years continuous economic growth. This growth may indicate that there will be an “economic pop” while the economy gains momentum. If this prediction holds true, the student loan rates will raise steadily of the next four years.
“The major concern is what not fixing the rate could do to borrowers in the future,” Phil Matthews, student loan consultant, said in a previous interview. “With just a couple of hiccups it could become a case of future generations paying for those who had the luxury of borrowing at a lower rate. It’s not a sure thing that will happen, but it’s a fair possibility.”
For undergraduates borrowing from the government this fall, the interest rates are approximated to be 3.86 percent, as estimated by the House committee. Though the interest rates are tied to the economy, the new plan caps off the rates at 8.25 percent.
The interest rates on Stafford loans doubled from 3.4 percent to 6.8 percent on July 1. The new bill contains a retroactive clause that will change the rates of any loans taken out in the month of July to match the new rates, lowering them.
The new plan passed the House 392-31 but was met with opposition. Rep. Keith Ellison, D-Minn., who said he voted against the measure because it would likely increase the cost of attending universities over time.
“We are undercutting the future opportunities of America’s children,” Ellison said in a statement, “and compromising our economic vitality with the bill passed today.”
Rep. John Kline, R-Minn., who sponsored the House bill, said on July 31 that he was pleased both parties compromised on a long-term solution based on the market.
“Changing the status quo is never easy,” Kline said, “and returning student loan interest rates to the market is a longstanding goal Republicans have been working toward for years.”
The Senate put their stamp of approval on the bill with an 81-18 vote. Sen. Al Franken, D-Minn., voted for the bill, which he said was “the best deal possible” in a press release.
“I still believe we need to address college affordability in a comprehensive way,” Franken said in the release, “and I intend to keep working on this issue because students shouldn’t be saddled with insurmountable debt when they graduate.”
Though students borrowing for the 2013-2014 year can breathe a little easier, missing the 6.8 percent interest rates of just a month ago, those borrowing for the 2014-2015 year may need to start planning a different mode of payment.
“There is a very real chance that the worst case scenario of hitting the cap-off rate of 8.25 percent is only a few years away,” Matthews said. “If the economy keeps heading in the direction that it currently is, it’s likely that next July the rate will increase to the 6.8 percent that we feared this year, with no way of changing it. But looking on the bright side, if the economy does continue to improve as it looks like it will, there will be more jobs paying better salaries to help pay whichever loans you have.”
The federal Stafford loan interest rates are subject to change every July 1.