Come July 1, 2013, student loan borrowers—current and prospective—will see a massive increase in their loan repayment bills. Unless Congress intervenes, this date marks the deadline for when annual student loan interest rates will automatically double from 3.4% to 6.8%.
The Reason Behind the Increase
In 2007, legislation passed to temporarily halve the interest rates on federal Direct Stafford Loans, with the rates set to return to their original 6.8% on the early July expiration date. This law was written as temporary because it would cost approximately $6 billion annually to keep the interest rates at such a low percentage.
Political Action on the Hill
On Monday, April 23, President Obama inaugurated a week-long tour on college campuses in the South, West and Midwest to address this economic hot topic of college affordability, specifically that of student loan interest rates. Seeking the support of young voters and those saddled with huge college debt, Obama is campaigning to freeze current interest rates on federal Direct Stafford Loans.
The Republican-led House passed legislation Friday, April 27 to prevent the U.S. student-loan interest rate from doubling on July 1. The White House has threatened to veto the measure because of how the GOP intends to cover the costs (cutting a preventive health care fund Obama’s health care law).
- The $5.9 billion bill to extend the subsidy for one year passed on a 215-195 vote.
- Votes FOR the bill: 13 Democrats, 202 Republicans.
- Votes AGAINST the bill: 165 Democrats, 30 Republicans.
Staggering Statistics
Obama is urging legislative recourse, arguing that inaction would be a formidable setback to individuals pursuing higher education. Even as it stands right now, the statistics on student loan debt and the cost of education are appalling. The truth is in the facts, as they say, and here are some of the stats we’re working with:
- In 2011, 53.6 percent of people under the age of 25 who hold bachelor’s degrees were jobless or underemployed. It’s the highest such rate in 11 years, and it corresponds with a consistent slide in median wages for college graduates since 2000. (U.S. News)
- The national debt amassed on student loans is higher than that for credit cards or auto loans. (Huffington Post)
- The Federal Reserve Bank of New York has estimated about 15 percent of Americans, or 37 million people, have outstanding student loan debt. (Huffington Post)
- The banks put the total of outstanding student loan debt at $870 billion, though other estimates have reached $1 trillion. (Huffington Post)
- About two-thirds of student loan debt is held by people under 30. (Huffington Post)
- The average balance owed by student loan borrowers is $23,000; the most recent figures show new college grads with loans owed more than $25,000 after completing their education, a 5% increase from last year. (The Washington Post)
- Of 3.6 million borrowers who entered repayment in fiscal 2009, nearly 9 percent defaulted with two years, up from 7 percent for the previous year’s cohort. (The Washington Post)
- The average in-state tuition and fees at four-year public colleges in 2011 rose an additional $631 (approx. 8%) from the year before; the cost of a full credit load has passed $8,000, the highest ever recorded. (The Washington Post)
- According to The White House, more than 7 million students would be affected by the doubled rates. (Huffington Post)
- The White House states that the increased interest rates would cost students $1,000, based on the average amount borrowed a year ($4,200) and the average time it takes to pay the loan (12 years). (Huffington Post)
iGrad is closely following the course of the student loan interest rate legislation and will continue to make updates on its status when new information is available. Please check back with us at a later date for more news.
