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 Igraduate," 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 toextend 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.
The debate is further complicated politically because there are so many competing proposals. The White House plan, for example, is similar in some ways to the House Republican one, making it difficult for Congressional Democrats to rally behind the president's proposal.
Also a factor in slowing progress is that the student lobby is not a well-organized force able to push the issue ahead, he said.
"I think it could get pushed out to the fall, to when students are coming back to college," McCuan said.
In the meantime, for borrowers, concern is mixed with uncertainty.
"For incoming students, they're just confused, they don't really understand what terms their loan will have," said Susan Gutierrez, SSU director of financial aid.
Whatever happens, she said, students, especially those with fewer financial resources, are up against it.
"It's hard when you're an incoming student and you need the funding to achieve your educational goals, it's hard to say 'no,' even though it will cost you more," Gutierrez said.
Student advocates are arguing for an extension rather than any of the competing plans, saying that they all are unsatisfactory. They object to some plans, including the White House one, that would not cap interest rates, and the House Republican plan, which would allow rate to increase even on existing loans.
"Ideally, it would be nice to keep it the same and then have a much lengthier, more substantive conversation about what our country's priorities are when it comes to higher education," said Meredith Vivian, director of government relations for the California State Student Association.
The federal Department of Education has said there is a window of time during which, if the rate were lowered to 3.4 percent and continued, the change could be applied retroactively to any loans taken out since July 1.
But it hasn't set how long that window is, said Thompson, of the Institute for College Access, which is rallying a swift lobbying effort before the July 10 Senate vote.
"Now really is a key time," she said. "The more they hear from constituents now and next week, the more likely we are to have votes next week on that proposal and any other options as well."
(You can reach Staff Writer Jeremy Hay at 521-5212 or jeremy.hay@pressdemocrat.com)
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