President Barack Obama is expected to sign a bill into law this week that will, for now, lower student loan interest rates.
Congress passed the measure July 31, tying interest rates on multiple student loans to the financial market, which will lower rates for thousands of University of Minnesota students who rely on them to pay for school. But if the economy improves as expected, those rates will rise with it.
For undergraduates taking out subsidized Stafford loans this fall, the plan will bring the interest rate down to about 3.9 percent, according to a House committee’s estimate. Though it’s tied to the market, the bill caps the rate at 8.25 percent.
The interest rate on subsidized Stafford loans doubled to 6.8 percent on July 1 after a slew of proposals to avoid the rate jump failed in both the House and the Senate.
A retroactive plan, the measure will lower the rate on loans taken out at the higher rate since last month’s increase.
University student and Minnesota Student Legislative Coalition chairman Matt Forstie said the compromised plan is “disappointing” because it’s not “optimal” for students.
“The good part of this is that this deal ensures pretty low rates for students this year before the school year starts,” he said, “but the dark side of this is that it sets us up for a really dangerous situation as soon as three or four years down the road.”
The new plan passed the House 392-31 but was met with opposition from some, including Rep. Keith Ellison, D-Minn., who said he voted against the measure because it will likely increase the cost of school over time.
“We are undercutting the future opportunities of America’s children and compromising our economic vitality with the bill passed today,” Ellison said in a statement.
University Director of Student Finance Kris Wright said she’s excited Congress has found a long-term solution that has floating interest rates with a cap.
“I do think there needs to be a balance between taxpayers and students, and interest rates are part of that,” she said. “You can’t have your cake and eat it, too.”
Although the University didn’t officially lobby for any student loan plan, school officials have supported market-based plans like this one in recent months.
Wright said she thinks the caps on interest rates are reasonable for students and that it’s unclear if changes in the economy will raise interest rates.
“Obviously there are some pros and cons to all the approaches,” she said.
Rep. John Kline, R-Minn., who sponsored the House bill, said in a July 31 statement he was glad both parties compromised on a long-term solution based on the market.
“Changing the status quo is never easy,” Kline said in the statement, “and returning student loan interest rates to the market is a longstanding goal Republicans have been working toward for years.”
The Senate passed its version of the bill on July 24 in an 81-18 vote. Sen. Al Franken, D-Minn., voted for the bill, which he said was “the best deal possible” in a press release.
“I still believe we need to address college affordability in a comprehensive way,” Franken said in the release, “and I intend to keep working on this issue because students shouldn’t be saddled with insurmountable debt when they graduate.”
Mike Schmit, president of the University’s Minnesota Student Association, said he’s concerned about rates increasing to the maximum 8.25 percent. Schmit, who has taken out subsidized and unsubsidized Stafford loans to pay for school, agreed this was the best deal Congress could have made right now.
“Personally, I would have liked to have seen an extension of the 3.4 percent subsidized rate, because that’s locked in,” he said, “but again, I don’t know if we could have done anything better.”