Interest rates doubled Monday on new federal student Stafford loans after Congress did nothing to halt the change and could not agree on any of several competing alternatives.
The rates climbed from 3.4 percent to 6.8 percent on all new subsidized Stafford loans, one of the most popular student financial aid programs. The new rate applies to any loans taken out from Monday onward.
“It's going to drastically affect me when I graduate,” said Anthony Gallino, who this fall will enter his fourth year at Sonoma State University. He expects it will take him five years to finish school and that he will need more loans along the way.
The hike comes as student loan debt hits $1 trillion nationwide, a public policy concern that some say threatens a crisis similar to the collapse in subprime mortgages.
Just more than 2,000 SSU students took out subsidized Stafford loans last year, with an average amount of $4,140.
A 6.8 percent rate means a student starting college this year would pay about $4,000 more in interest payments over a 10-year period, according to an analysis by the Institute for College Access and Success.
“We were surprised and disappointed, as well,” said Jessica Thompson, senior policy analyst at the Oakland-based research and advocacy nonprofit.
“It makes no sense to allow interest rates to double now with college costs being what they are and prevailing rates on the open market being so low,” Thompson said, raising an increasingly voiced criticism that commercial and personal borrowers can secure loans for lower rates than can students.
The Senate is scheduled to vote July 10 on a bill to extend the 3.4 percent rate for another year, as it did last year, but observers say nothing is likely to be resolved for some months.
The hot button issue of overhauling immigration laws will likely push aside that of loan rates. And fights over reducing the federal budget deficit will hamper efforts to maintain the lower loan rate because that would push up the deficit by lowering government revenue, said SSU political scientist David McCuan.