Congressional inaction has led the interest rates on the most common federal student loans to double.
Interest rates on Stafford loans jumped to 6.8 percent Monday after lawmakers were unable to agree on a slew of proposals over the past several months.
More than 14,300 University of Minnesota students took out subsidized Stafford loans in 2012, collectively worth about $54.7 million. Without action from Congress, University students taking out the loan will pay twice the interest rate of last year.
Global studies junior Cameron Jeon has both subsidized and unsubsidized Stafford loans to pay for school.
“I’m glad it doesn’t affect the loans I’ve already taken out,” he said, “but it’s pretty dumb.”
Congress could strike a deal extending the 3.4 percent rate another year when lawmakers return from their Independence Day vacation next week.
The potential legislation would be retroactive, so any loans taken out after July 1 could get the 3.4 percent interest rate, but the bill faces a potential Republican filibuster in the Senate.
University student and Minnesota Student Legislative Coalition chairman Matt Forstie said he was disappointed Congress didn’t respond to lobbying efforts from the MSLC and other student organizations.
“It was clear that Congress didn’t think it was important enough to act by now,” he said.
Groups including the MSLC, Minnesota Public Interest Research Group and the Graduate and Professional Student Assembly released a statement Monday supporting an extension of the 3.4 percent interest rate this year and calling on Congress for a long-term solution.
“Considering the enormity of the student debt problem and the significant number of borrowers impacted, it is clear that students need a comprehensive overhaul of federal student loan policy,” the groups said in the statement.
Nearly 200,000 Minnesota students took out Stafford loans last year, according to the U.S. Department of Education.
University officials, including President Eric Kaler, have expressed support for a market-based plan, allowing the rate to fluctuate from year-to-year with the government’s cost of borrowing.
But that plan, proposed by U.S. Rep. John Kline, R-Minn., dissolved after a veto threat from the White House.
University Student Finance Director Kris Wright said it’s difficult for financial aid distributors to work with students when interest rates are unclear.
“This is the worst I’ve seen it,” she said, adding that Congress has typically passed legislation before the deadline.
This is the second summer in a row Congress has waited until the deadline to address the doubling of Stafford loan interest rates. Last year, it passed an extension of the 3.4 percent rate just before the deadline.
Wright said she thinks Congress should compromise on a solution soon so it has more time to tackle other important higher education issues.
“What is troublesome to me, personally,” she said, “is that if we can’t come to an agreement on this when everybody is pretty close, how are we going to deal with some of the bigger issues?”
Though some students are worried about the new interest rate, many University students don’t use loans to pay for their education.
Almost half of University students didn’t take out loans last year, making students like chemistry senior Dan Ahlm “not too worried” about the interest rate hike.
Ahlm said he works a part-time job, gets financial help from his parents and commutes from a suburb to save money while in school.
Bioproducts and biosystems engineering senior Jean Moua is paying for school with a full-ride scholarship.
She said she’s very fortunate to have the scholarship, adding that her siblings are still paying off their student loans years out of college.
In 2012, 64 percent of University graduates finished school owing a median of about $27,000 in debt.
While Jeon still has some school to pay for himself, he said he’s more worried his younger sister won’t be able to afford college.
“If they don’t stop the [loan rates] from doubling,” he said, “I’m going to feel like they threw the student population under the bus.”
-The Associated Press
contributed to this report.