United States - The interest rate on student loans doubled Monday, as Congress failed to extend the current rate or set a new flat rate by the July 1 deadline. The automatic rate increase could affect incoming college students and the future educational plans of the more than 7 million students nationwide who use the subsidized Stafford loans-the most common king of student loans.
For the past two years, subsidized Stafford loans have had an interest rate of 3.4 percent. Upon that rate's expiration, July 1, the new rate doubled to 6.8 percent. Schools and students with student loans had hoped Congress would be successful in negotiating a way to temporarily keep the lower interest rate by linking it to the yield on 10-year treasury notes. In May, there already was a more than 50 percent increase on those 10-year treasury notes.
Proponents of increasing the interest rate, primarily Republicans, have been pushing for deficit reduction, but Democrats argued deficit reduction should not be "on the backs of these young men and women who are trying to go to college."
WFMY News 2's Good Morning Show talked with one of the 8,483 students (75 percent) at North Carolina A & T who have received a federal loan this past year. Though the new interest rate will not affect existing loans, graduate student Michael Watlington said a higher student loan interest rate might delay his aspiration to get his PhD.
Watlington, who also went to A&T for his udergraduate schooling, said he has been using subsidized Stafford loans since he was a freshman at the school. The total loan amount incurred by A&T students last year was roughly $68 million, and about 938 students graduated with some type of direct loan debt, according to Vice Chancellor of Enrollment Management Akua Matherson.
Matherson said in light of the pending interest rate increase, she and other school administrators have been attempting to counsel students about how to manage their existing student loans and prepare for the rate increase. She said she strongly encourages incoming freshmen to apply for only the loan amount they absolutely need in order to pay for schooling.
Matherson affirmed what many critics of the rate increase have speculated--that raising the student loan interest rate often prologues the amount of time it takes for students to pay back the loans. This phenomenon subsequently takes a negative toll on the economy. A student loan ombudsman at the Consumer Financial protection Bureau told the Senate Banking Committee on June 25, "When young workers are putting large portions of their income toward student-loan payments, they're less able to sash away cash for that first down payment."
WFMY News 2 reached out to the North Carolina State Education Assistance Authority about student loan defaults in the state. The department did not return WFMY's request for numbers pertaining to student loan defaults each year, but a representative did indicate the department has been bracing for the rate increase, which most likely will yield more loan defaults in the near future.