Federal Loan Interest Rate Doubles

Ashley Thorne

  • Article
  • July 01, 2013

Today the interest rate on federally-backed Stafford student loans doubled, from 3.4 percent to 6.8 percent. The rate increase, which was written into the original 2010 law establishing a federal overhaul of student loans (bundled in with Obamacare), first came due in 2012, but Congress voted to delay its arrival for a year.

This year, Congress failed to reach agreement on how to avoid the rate increase and missed the deadline for preventing the law from going into effect.  A 6.8 percent interest rate was an outcome that everyone—President Obama, Republicans, and Democrats—sought to avoid, but their inability to come to a decision as to how allowed the increase to happen.

Students who will be affected are those who take out new Stafford loans after today. According to the Washington Post, “More than 7 million students are projected to take out subsidized loans for the coming school year.” President Obama has estimated that over a borrower’s lifetime, the interest rate increase could add $1,000 to debt payments. Congress’s Joint Economic Committee estimates $2,600.

Congress may still reverse the decision by reaching agreement when it meets after the July 4th holiday. Its failure to do so when the timing was ripe, however, does not inspire confidence.

The timing of this increase also seems convenient for Congress; it is going into effect in the middle of summer, when students cannot rise up and protest.

When Direct Lending was first added to the Affordable Care Act in 2010, NAS president Peter Wood warned in “Obama Loans, Who Collects?”:

Direct Lending will turn the majority of college students into clients of the federal government, dependent on the government’s decisions about how much they can borrow and at what rate.  Direct Lending at the same time will solidify the government’s role as the main patron of the colleges and universities themselves.  The Direct Lending system would create an unparalleled choke point over higher education.

The doubling of the student loan interest rate is the first major encounter with this reality. 

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