Stafford Loan rates double, but local financial aid officers counsel patience
By Sandra Guy Staff Reporter July 14, 2013 9:20PM
Prospective students tour Georgetown University's campus in Washington, Wednesday, July 10, 2013. The defeat of a student loan bill in the Senate on Wednesday clears the way for fresh negotiations to restore lower rates, but lawmakers are racing the clock before millions of students return to campus next month to find borrowing terms twice as high as when school let out. (AP Photo/Jacquelyn Martin) ORG XMIT: DCJM301
Updated: August 16, 2013 6:08AM
As lawmakers in Washington try to reach a deal to lower student loan interest rates, local college financial aid officers are telling concerned parents and students they should prepare for higher rates.
But they are hoping a deal can still ease the pain for borrowers.
Roughly half of the undergraduate student bodies at four local colleges and universities qualify for the subsidized student loans being debated. Congress failed to act to keep interest rates on Stafford Loans from doubling to 6.8 percent July 1. Lawmakers have tried and failed to come up with a compromise to this point .
The latest idea is to tie the rates to the 10-year Treasury note plus an extra percentage to pay for administrative costs. That deal could put rates this fall at 4 percent and cap rates at 8.25 percent in future years.
Max Gleischman, spokesman for U.S. Sen. Dick Durbin, D-Ill., said talks continue on a compromise, including how to deal with the way interest rates would be tied to other types of loans such as graduate and PLUS loans.
If current rates stand, it ultimately could mean an extra $2,600 over the life of the loan for an average student returning to school this fall, according to Congress’ Joint Economic Committee.
Governors State University in University Park has received “a few” calls from concerned students and is “encouraging them to prepare for significant change in the structure of financing their education,” spokeswoman Rhonda Brown said.
Governors State and other financial aid officers say they counsel students to keep their debts as low as possible and offer programs to help them do so.
The University of Illinois at Urbana-Champaign has had no calls, and financial officials there are taking a hopeful attitude.
“We are still very optimistic the loan rates will get adjusted,” said Randy Kangas, associate vice president for planning and budgeting at the university. “It is in the news every day. It will affect millions of people. Investing in students is very important.”
College of DuPage officials are reminding parents and students that the interest rates take effect when the students actually borrow the money, and students cannot do that until 10 days before the fall term starts. Furthermore, the loans don’t start accruing interest until students start repayment, which is usually after graduation.
“Although (Congress’ inaction so far) is very, very disappointing and very frustrating, this is the period when students and parents are attending orientation and preparing for classes; this is not yet the time they should be going through the angst of knowing whether they’ll pay a 3.4 percent or a 6.8 percent interest rate,” said Earl Dowling, associate vice president for student affairs at the Glen Ellyn community college.
Dowling conceded that some students may change their higher-education choices if the interest rates double.
“If the rates double, the cost of education will go up, and the school had no role in it,” he said.
And interest rates aren’t parents’ and students’ only concern.
Ruth Pusich, director of financial aid at Elmhurst College, a private, four-year liberal-arts school, said the federally mandated sequester budget cuts hurt more by increasing the origination fee — akin to points on a mortgage — on the subsidized loans.
That fee, which is tacked onto a loan when the money gets disbursed, increased to 1.0510 percent with no rebate. Before the sequester, the fee was 1 percent with no rebate.
The difference for a freshman likely would total $1.79 a year on a $3,500 loan, but it has to be paid immediately and comes out of the funds, Pusich noted.