The Miami Herald

Possible doubling of college loan cost a political hot potato

At Florida International University — where, like other state schools, tuition costs more than double what it did a decade ago — senior Stephani Galindo is frustrated. Even with scholarships and the help of need-based federal Pell grants, Galindo has had to borrow about $20,000 to finance her education.

And on July 1, unless Congress acts, the cost of borrowing is about to go up — by a lot. The interest rate on federally subsidized Stafford loans, currently at 3.4 percent, is set to double to 6.8 percent.

“I already have so many loans, because my parents didn’t save any money for me for school,” said Galindo, 20. “I’m smart, too, I’ve got some scholarships, but it’s not enough, not at all.”

The possible rate increase is prompted by the expiration of a temporary period of lower rates created by 2007’s College Cost Reduction and Access Act, which passed Congress with broad bipartisan support. The law gradually reduced rates from 6.8 percent to the current 3.4 percent, but with the caveat that rates would reset back to 6.8 percent this year.

The potential rate increase comes as students and families are increasingly finding college unaffordable, and the financial hits are coming from all directions: federal Pell grants can no longer be used for summer classes; state financial aid programs such as Florida’s Bright Futures scholarships have been scaled back; double-digit tuition increases have become the norm.

But not all undergraduates would be affected by the rate increase. Subsidized Stafford loans are awarded only to low-to-moderate income students, while unsubsidized loans (which anyone is eligible for) are already set at 6.8 percent, and so would not be affected by the July 1 deadline.

Anyone who took out a loan before July 1 — whether you’re still in school or have graduated — would also be unaffected, as student loan rates are fixed at the time you borrow.

But the issue has become a hot potato in political circles.

Both parties in Congress, mindful of the sour economy and the current election year, have voiced support for extending the current lower interest rate on subsidized loans. But as is typical in the current gridlocked political environment, the two sides haven’t been able to agree on how to pay the $5.9 billion price tag.

Raising the rate would affect more than 7 million U.S. students. The White House estimates that the higher interest charges would add another $1,000 in debt for the average undergrad.

President Barack Obama, who finished paying off his own student loans only eight years ago, has said it’s a “no-brainer” to keep the lower interest rate in place.

Speaking at a Virginia high school last month, Obama said “You guys shouldn’t have to pay an extra $1,000 just because Congress can’t get its act together. . . . This is something that we need to get done.”

Democrats want to increase payroll taxes on some privately held companies. Republicans countered with several spending-cut proposals, including reductions to a fund aimed at promoting disease prevention and public health. The House of Representatives, with mostly Republican votes, approved that plan in April, but it’s going nowhere in the Democratic-run Senate.

Both sides privately think the dispute will be settled this month. Senate Majority Leader Harry Reid, D-Nev., offered a plan recently that raises money with some changes in pension policy, and Republicans didn’t instantly dismiss the idea.

At the same time, the two sides keep finger-pointing, knowing that the stakes are huge for whoever emerges as the champion of college students, because the 18- to 29-year-old vote is considered crucial — and volatile. Obama holds a 56-34 percent lead so far over former Massachusetts Gov. Mitt Romney, the presumptive Republican presidential nominee, in that age group, according to Gallup polls conducted May 14 to June 3. That’s sharply down from Obama’s share of young adults in 2008.

It’s unclear how much Romney can continue cutting into that support, if at all. Young people tend to decide on their votes late in the election year, said Kei Kawashima-Ginsberg, the lead researcher for CIRCLE, a Massachusetts-based group that studies youth voting. “It’s an awareness issue. Young people have other things on their mind, and are less likely to talk about politics with their peers than older people,” she said. “They also tend to think more about the short term than older people.”

FIU’s Galindo, who plans to vote for the first time this year, says the interest rate jump is a “big deal.’’ She hasn’t decided whether Obama or Romney will get her support, but she said the interest-rate issue and whether it is resolved will likely influence her choice.

Americans now owe more on student loans than on their credit cards, with total student loan debt expected to exceed $1 trillion this year. Students who graduate with excessive debt frequently must put off big purchases such as a car or home, an act of belt-tightening that can have negative reverberations throughout the U.S. economy.

Interest rates for car and home purchases are currently at historic lows, which raises another issue about the possible student loan rate increase: Is it fair for those funding a college education to be charged higher borrowing rates than those buying a Chevrolet?

“It’s a tax on students, that’s essentially what it is,” said Braulio Colón, executive director of the Florida College Access Network advocacy group. “It’s a slap in the face of students and families who are trying to get the training and skills they need to become productive citizens.”

David Lightman and William Douglas from McClatchy News Service contributed to this report.




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