It seems like lately there’s not a lot of good news to report about student loans. There’s a trillion dollars in outstanding educational debt and more borrowers are defaulting every day. There’s more bad news on the horizon – unless Congress acts quickly – about student loan interest rates… Unless there’s a change enacted by our lawmakers by June, key Federal student loan rates are set to double. That’s right – double!
Subsidized Stafford loan rates are now set at 3.4% but if Congress doesn’t cut borrowers a break, it will double to 6.8% in July. Six years ago, a law cut then interest rates in half to the present lower interest rates and a one year extension signed last summer kept the rates low for another 12 months, but these rates will expire – and double – in just three months unless something drastic happens.
Over seven million students will be hard hit by this rate increase – at a time when the student loan bubble is threatening to burst – taking a chunk of our already fragile economy with it! Each year at the doubled rate equates to $1,000 more in increased payments over the life of the loans and these are profits that will inure to the government – at a terribly high cost to student loan borrowers.
University of Georgia’s Joseph Boles, an official in the university’s Office of Student Financial Aid, says “This increase is not a possibility, it is current regulation. Interest rates for federal direct student loans are set by the U.S. Congress. If the U.S. Congress changes the interest rates for federal direct student loans, this change would affect all students receiving federal direct student loans.”
This change would raise the cost of subsidized loans (those underwritten by the Federal government) to the same rate of interest as unsubsidized loans. The primary difference between the two loans is that subsidized loans are intended for students in financial need while anyone can borrow unsubsidized loans. But with both at the same interest rate of 6.8%, where’s the helping hand to lower income students that the loans once offered?
One group that’s fighting back against rising student loan debts is Stampede Labs – they are taking a crowd source sort of approach to lobbying lenders for lower rates. Their goal is to enlist 100,000 student loan borrowers and to throw that into a quasi-collective bargaining effort to get rebates or lower interest rates from targeted lenders. Stampede has set a deadline of April 4th for people to sign on to the effort and then will negotiate with lenders of those enrolled and will report back with offer(s) by April 18th.
It’s a great idea and I’m interested to see if it produces results. It can’t hurt to try, right? So far, they’ve had over 22,000 people holding more than $1.3 million of student loan debt join their movement. If you have student loan debt, you may be interested in checking out their efforts to see if they might benefit you.
And if you are a student still in school and borrowing using subsidized loans to fund your education, it would be wise to call your Senators and contact your Representative to ask them to keep interest rates as they are. Call, email or write now to raise your voice before it’s too late. And if you’re already borrowing, consider trying Tuition.io’s free student loan management tool to optimize your borrowing.