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Congress Extends 3.4% Interest Rate for Federal Student Loans - At a Cost to Students

Sep 3, 2012 Jennifer Williamson, Distance Education.org Columnist | 0 Comments

Just before the July deadline, Democrats and Republicans finally arrived at an agreement keeping the interest rate on federal student loans from jumping from 3.4% to 6.8%. The agreement will keep the lower student interest rates in place for another twelve months.

It sounds like a victory for students. But it comes in the midst of some serious belt-tightening over the past year—much of it in the area of student loans. While the Obama Administration at first made attempts to expand the reach of federal student loan programs, many of those gains have been significantly rolled back or offered as compromises to achieve other goals.

Costs are jumping particularly for graduate students. In the past, graduate students could qualify for subsidized Stafford loans, which did not accumulate interest while students are enrolled. Effective for loans originated after July 1, 2012, there is no subsidized loan program for graduate students. Those graduate loans will now accumulate interest while students are still in school—dramatically raising the bill for most graduate students. And there is no more six-month grace period
after graduation in which student loan interest is paused and students can
delay paying back the loan. These changes will affect approximately 1.2 million
students per year, the majority of whom are in medical or law school.

See Also: Online Medical Degree Programs

Graduate Holding Student Loans

Hopefully, the economy will improve in the next ten years—and our government’s priorities will shift toward making college more accessible and affordable to everyone

 

 

 

 

In addition, although the Obama administration originally attempted to expand the reach of the Pell Grant program, the number of semesters students can qualify for a Pell Grant has now been limited—and the qualification requirements for the maximum award have been made more difficult for needy students to meet.

See Also: Online Graduate Degree Programs

The changes are projected to cost billions to students in the coming decade. Much of the cuts came with the Budget Control Act of 2011, during which Congress enacted significant cuts in the federal budget in order to get the debt ceiling raised for another year. The deal imposed limits on spending that continue through 2021—so more cuts may be coming down the road.

One of those is a possible cut to the Pell Grant program. This program makes up approximately 1% of all government spending—making it a prime target for budget cuts. Those who seek to protect the program may have to make compromises in other federal aid programs, such as federal work-study or loan forgiveness programs.

A Joint Select Committee on Deficit Reduction is required to approve a plan for reucing the deficit by $1.2 trillion over the next decade. If it doesn’t, spending cuts across the board will be automatically put in place applicable to the period between 2013 and 2021. These could result in further reductions to the Pell Grant program.

In all, the current political climate makes it unlikely that federal student aid will be expanded in any meaningful way within the next ten years. However, while some colleges do seem to be addressing costs, college tuition continues to increase—and is likely to continue to do so over the next decade. These changes will only serve to make college less accessible to lower-income and even middle-income students.

Hopefully, the economy will improve in the next ten years—and our government’s priorities will shift toward making college more accessible and affordable to everyone. In the meantime, college may become even more expensive—and student debt levels will continue to rise—regardless of this year’s interest rate victory.

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