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Students may face rate hike on loans

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By The Associated Press
Thursday, March 28, 2013, 8:33 p.m.

WASHINGTON — Incoming college freshmen could end up paying $5,000 more for the same student loans their older siblings have if Congress does not stop interest rates from doubling.

Sound familiar? The same warnings were made last year. But now the presidential election is over and mandatory budget cuts are taking place, making a deal to avert a doubling of interest rates much more elusive before a July 1 deadline.

“What is definitely clear, this time around: There doesn't seem to be as much outcry,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators. “We're advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent.”

That rate hike hits only students taking out new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students' non-subsidized loans are not expected to change, nor are loans taken from commercial lenders.

The difference between 3.4 percent and 6.8 percent interest rates is a $6 billion tab for taxpayers — set against a backdrop of budget negotiations that have pitted the two parties in a standoff. President Obama is expected to release his budget proposal in the coming weeks, adding another perspective to the debate.

Last year, with the presidential and congressional elections looming, students got a one-year reprieve on the doubling of interest rates. That expires July 1.

Neither party's budget proposal in Congress has money specifically set aside to keep student loans at their current rate. The House Republicans' budget would double the interest rates on newly issued subsidized loans to help balance the federal budget in a decade. Senate Democrats say they want to keep the interest rates at their current levels, but the budget they passed last week does not set aside money to keep the rates low.

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