Student loan deal not enough, local advocates say

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.

"I don't think that we should be paying down the federal debt and putting on the backs of students," said Butkiewicz.

"Even though it looks good next year for a student who takes out a loan now, her little sister is likely to end up paying much higher interest rates down the road," said Rory O'Sullivan, policy and research director for Young Invincibles. The Washington-based nonprofit works with young people to get them involved in public policy issues.

Democrats have emphasized the rate caps in the bill and that it reels back the rate from 6.8 percent.

Rep. Jared Huffman, D-San Rafael, who had pushed a bill extending the 3.4 percent rate for two years, said the caps were too high, but that "this at least gets it down to 3.9 percent for a while and this was the best deal we were going to get."

Political observers said it was a win for GOP legislators who had insisted on linking rates to financial markets and will likely be able for years to resist Democrats' efforts to lower the maximum rates.

"It was a victory for Republicans because they own the House and are going to for some time," said SSU political scientist David McCuan. "If Democrats want to revisit this, and set the rates lower, that's going to be very difficult for them to do."

Huffman, a first-term Democrat, said that another window to make substantive changes will arrive late this year or early in 2014 when the Higher Education Act, which governs student grants and loans, comes up for reauthorization.

"We will have other opportunities; let's use this ... reauthorization and let's go big," he said, saying that he would prefer rate caps of 5 or 6 percent.

"Whether we can get to that, I don't know, but we need to negotiate something that's better than we have now," he said.

(You can reach Staff Writer Jeremy Hay at 521-5212 or jeremy.hay@pressdemocrat.com.)