The clock is ticking. Congress has 13 days left before the interest rates double on some federal student loans.
U.S. Rep. Joe Courtney joined a group of Connecticut college students Monday at the Capital to push for legislation that would prevent the rates from doubling.
Stafford student loans, one of three major types of federal student loans that account for about 26 percent of all federal student loans, are need-based and are offered to undergraduate students at a 3.4 percent interest rate. On July 1, the rate will double to 6.8 percent if no legislative action is taken.
“Student loan debt is $1.1 trillion in this country: far greater than credit card debt, far greater than car loan debt,” Courtney said. “It threatens the economy and an odd collection of groups have weighed in [because] it won’t allow the economy to grow.”
Courtney co-sponsored H.R. 1595, a bill that would extend the 3.4 percent interest rate for another two years. The bill has 160 cosponsors and recently 186 lawmakers signed a discharge petition, which is a legislative maneuver that would bring bill out of committee and force consideration.
Courtney added that because the federal government profits off of the student loans, there’s no excuse for not providing relief for students from the rate hike.
“Given the fact that this program is already generating revenue for the government, there’s no excuse for that.” Courtney said.
In Connecticut, more than 73,000 students currently receive unsubsidized Stafford loans, and ConnPIRG, Connecticut’s branch of a national student advocacy group, calculated that the rate increase would cost each student receiving these types of loans an additional $4,000 to $5,000 as they are paid out over the loan’s 10-year time frame.
Mitchell DeMazza, a recent graduate of the University of Connecticut, took a scholarship from the Spanish government to continue his education in Spain after graduation. He said that with his parents divorced and a handicapped father, his family already has significant financial burdens.
“I have $45,000 in student loans . . . That’s kind of why I’m going to Spain so I don’t have to jump into paying them right now,” DeMazza said. “I had to shy away from going to private schools and out-of-state schools. It really puts you in a real burden when choosing schools knowing that the interest rates will possibly double and tuition is crazy.”
Subsidized Stafford loans have offered a lower interest rate than the unsubsidized version. If the rate-hike goes into effect they will both be at 6.8 percent. However, students receiving subsidized student loans will still be able to defer payments on the loan until after graduation.
The rate hike would not affect students who have already secured Stafford loans. But it will affect any student who applies for a Stafford loan after July 1.
Elsa Nunez, president of Eastern Connecticut State University, said if the rate increase goes into effect, thousands of Connecticut students will be forced to default on their loans or drop out of school.
“I think we are facing the most important financial issue facing our country’s leaders and the clock is ticking,” Nunez said. “If this goes into effect, it will affect millions of students across our nation and they will be unable to meet the added expense.”
House Republicans passed H.R. 1911 to address the rate hike, but Courtney said enacting that legislation would be “worse than doing nothing.”
He said the legislation would make college more expensive for students because it increases the amount of debt students may take on, would require students to pay nearly $4 billion in additional loan interest rates, and would force students into loans that have fluctuating interest rates.
President Barack Obama, The Education Trust, The Institute for College Access and Success, and a coalition of student groups have spoken out against the Republicans’ bill.
“Congress needs to act before July 1 to prevent the doubling of student loan interest rates,” reads a statement from the White House that was issued in response to the bill. “While we welcome action by the House on student loans, we have concerns about an approach that both fails to guarantee a low rate for students on July 1, without adding to the deficit.”
But Courtney said even if nothing can be done in the short 13 days before the rate hike goes into effect, as long as something gets through in the near future, the detrimental effect could be averted.
“These deadlines are not hard deadlines,” Courtney said. “If we can do something by July or August we might be able to retroactively help people.”