Caught in the political maelstrom in Washington, D.C., interest rates on new student loans will double Monday.
Rates on subsidized Stafford loans, one of the main ways the federal government funnels money to students to pay for tuition and other college costs, double to 6.8 percent.
That could add $4,000 in payments over 10 years for a borrower entering college this fall, according to the policy group Institute for College Access and Success. A new report from Congress’ Joint Economic Committee said the higher rates would add $4,500 to the cost of a four-year college degree.
“It will have a huge impact on students, particularly for those going into industries that aren’t as high-paying,” said Joe Blizzard, incoming student body president at the University of Cincinnati.
Blizzard, a senior from Dayton, Ohio, working on a joint engineering and MBA degree, was in Washington earlier this month with other students lobbying to prevent the increase.
The fight over Stafford loans only touches the surface of the crisis in student debt, which now tops $1 trillion, averaging nearly $27,000 for those who borrow to afford college.
Experts say student debt could imperil the health of universities and already is preventing graduates from buying homes and starting businesses, choking an economic recovery.
Even as Americans held overall consumer debt to a 9 percent increase from 2004 to this year, student debt tripled to $986 billion after adjusting for inflation, according to an Enquirer analysis of Federal Reserve Bank of New York data.
It’s now 8.8 percent of all consumer debt, up from 3.1 percent in 2004.
Congress gradually lowered the rates for subsidized Stafford loans starting in 2007 to 3.4 percent but that legislation is set to expire. Lawmakers passed a one-year extension last year.
More students than ever are applying for federal loans.
About 31.4 million students applied in 2011-12, up from 19.4 million in 2007-08, according to the National Association of Student Financial Aid Administrators.
With subsidized Stafford loans, the government pays the interest that accumulates while the student is in college. With unsubsidized loans, the borrower pays all of the interest.
President Barack Obama and members of both parties have offered alternatives, including linking the rate to U.S. Treasury notes or simply extending the lower rates for a few years. Some call for fixed rates while other plans would allow interest rates to adjust with market rates.
U.S. Sen. Sherrod Brown, D-Ohio, said more than 360,000 students in Ohio alone rely on subsidized Stafford loans.
He has proposed allowing people paying off private loans to convert those to lower cost direct federal loans.
“Why should our students and graduates be the last to benefit from historically low interest rates?” Brown said in a statement.Student loan rates to double »