If Congress doesn’t act soon, almost 200,000 Minnesota students could see interest rates double on their college loans.
The Stafford student loan interest rate is set to double July 1, but the Republican-led House of Representatives and the White House are pushing opposing plans to address the issue.
Each year, thousands of University of Minnesota students take out Stafford Loans, the most commonly used type of federal student loan in the nation.
The main bill moving through the House, authored by Rep. John Kline, R-Minn., would set market-based interest rates for loans, allowing the rate to fluctuate from year-to-year with the government’s cost of borrowing.
The plan, which caps interest rates at 8.5 percent, passed the U.S. House on May 23, but President Barack Obama’s administration said he won’t sign the measure if it reaches his desk.
The Democrats have proposed multiple plans, but Obama and others support a bill that would extend the current 3.4 percent interest rate another year, giving Congress more time to work out a long-term solution.
Both sides say something needs to be done as student debt grows.
Last year, more than 15,000 University students took out unsubsidized Stafford loans, according to Office of Student Finance data.
Also, the 64 percent of University students who graduated with debt in 2012 owed a median of $27,334.
The University isn’t lobbying for or against the issue, but the school has expressed support for Kline’s bill, said Channing Riggs, director of University Federal Relations.
The University wants four principles from Congress’ solution: a flexible interest rate, a long-term solution, a cap on interest rates and a way of paying that doesn’t take from higher education funding, Riggs said.
“We applaud Congressman Kline because I think it was a very reasoned approach,” she said, adding that Kline’s bill has their desired principles and “pays for itself.”
Riggs said she believes Congress will compromise on a short-term solution and address it next year during the Higher Education Act reauthorization.
University President Eric Kaler, in an interview with the “Minnesota Daily” Tuesday morning, said he also supports Kline’s bill.
But Brandon Lorenz, a spokesman for the Democratic Congressional Campaign Committee, said Kline’s bill could lead student loan interest rates to double, which he said isn’t acceptable.
“Congressman Kline is pushing a bill that would raise interest rates … and that’s just not the kind of vision that helps middle-class families afford college,” he said.
Mike Obermueller, Kline’s Democratic challenger for the 2014 election, said the bill is a “really unfortunate and bad policy” for students.
He said student loans helped get him through school, and the non-fixed interest rate in Kline’s plan could create problems for students with small budgets after graduating.
“The idea of your loans going up, even $100 a month, can make a big difference in your budget,” he said.
Riggs said some critics say Kline’s bill is too complicated for students because it makes the loan interest rate different each year.
“You do have to sign up for new classes, and you have to find some place new to live,” she said, “and you have to do your loan again.”
While the University supports Kline’s proposal, the Minnesota Student Association is pushing to continue the 3.4 percent interest rate for another year or more, said incoming president Mike Schmit.
Keeping a low, fixed interest rate is in the students’ best interest, he said.
“Student debt is the highest it’s ever been … doubling our interest rate is not the way to fix that,” he said. “Students aren’t the people who should be penalized in this situation.”