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Alarm over possible spike in student loan interest rates

  • Sonoma State University student Patrick Maloney works at his job at Residential Life on the SSU campus, Thursday May 2, 2013 in Rohnert Park. (Kent Porter / Press Democrat) 2013

Interest rates on some popular federal student loans are set to double in two months, a prospect that has alarmed students, parents and activists concerned about soaring student debt.

"It's ridiculous," said Patrick Maloney, a Sonoma State University junior who is involved in California State Student Association lobbying efforts to prevent the rate increase.

"It's disappointing and yet another instance where higher education is not being fully supported," said Maloney, a senator on SSU's student government body, Associated Students.

A U.S. Senate resolution would indefinitely extend the current rate of 3.4 percent on subsidized Stafford loans. But the House of Representatives budget plan would allow the rates on those loans to climb to 6.8 percent on July 1, as is currently scheduled. That would affect all future borrowers.

Also, President Barack Obama's budget proposal would lift the cap on interest rates for all student loans. Without it, based on Congressional Budget Office projections, unsubsidized student loan rates could hit 8 percent by 2013.

"In talking to students and parents, there is a lot of concern, said Susan Gutierrez, SSU director of financial aid.

"It's definitely concerning," said Melanie Bartlett of Santa Rosa, who has a son in high school, a daughter in middle school, and another son about to transfer from Santa Rosa Junior College to either UCBerkeley or UCDavis.

"We're going to do everything we can, because I would love to put my kids through college without taking loans, but I don't think that's realistic," she said.

In the 2011-2012 academic year, 1,932 SSU students took out both subsidized federal loans, which are given on the basis of financial need and have no credit requirement, and unsubsidized federal loans, on which interest begins accruing immediately.

Last year when Congress faced the same rate-hike scenario, it extended the 3.4 percent rate until this July 1. But that one-year extension took place in an election year. This year, with lower immediate political stakes, the chance of a similar step is uncertain.

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