Local student leaders fighting for changes to the federal student loan program said a bipartisan bill passed this week does not go far enough in reducing costs to borrowers.
The bill temporarily drops interest rates for federally subsidized loans to 3.9 percent, near the recent 3.4 percent level, and lowers unsubsidized loans below recent rates. But despite rate caps that House Republicans agreed to put in place, it is expected that rates on both types of loans could climb substantially in the next few years.
"We're very worried; it's so unfeasible for the average student," said Bernadette Butkiewicz, legislative affairs and special projects coordinator for Sonoma State University's student government body, Associated Students.
"The fact that it could ever get up to eight percent is just ridiculous," she said. "By doing this you're encouraging more people to make the decision not to go to college and incur that debt for the rest of their life."
The bill pegs student loan interest rates to 10-year Treasury notes. It needs President Barack Obama's signature and analysts say that is virtually assured since Obama, too, wants rates tied to financial markets and, also, because of the caps it places on those interest rates.
For now, it means that undergraduates can borrow subsidized and unsubsidized Stafford loans at 3.9 percent, graduate students at 5.4 percent and parents at 6.4 percent.
Those are higher rates than the 3.4 percent previously charged for subsidized loans, and lower than the 6.8 percent for unsubsidized loans. They are also lower than the 6.8 percent rate that subsidized loans rose to July 1 after Congress did not act to extend the lower rates.
The caps mean that for undergraduates, loan rates would not rise above 8.25 percent; for graduate students they would be capped at 9.5 percent; and parents would not pay more than 10.5 percent.
"Those are not as low as we would like to see but at least it will stay closer to what the market is doing," said Susan Gutierrez, SSU's director of financial aid.
The new loan rates are projected to generate $184 billion in profit over 10 years for federal coffers and people who had lobbied for either an extension or more substantive changes to the loan program said Congress was asking students to help pare the deficit.