The price for future Ohio State students who plan on taking out government loans to pay for college has increased.
Interest rates on all federally subsidized student loans doubled to 6.8 percent as of July 1. The hike occurred because Congress was unable to reach a deal to keep interest rates at 3.4 percent.
The increase will cost each student with a subsidized loan an additional $2,600 on average, according to Congress’ Joint Economic Committee.
Diane Stemper, the executive director of the OSU Office of Student Financial Aid, said the rise in interest rates will only affect future loans though.
“It does not impact students that have already graduated. It applies only to any new loans issued from July 1 on,” Stemper said.
A Senate vote Wednesday on whether or not to extend the 3.4 percent interest rate for another year to buy time to strike a deal did not pass.
The cause of the interest rate hike began in 2007, when Congress passed the College Cost Reduction and Access Act that was aimed at gradually cutting interest rates on student loans in half from 6.8 percent to 3.4 percent by 2011. The College Cost and Reduction Act was set to expire in 2013, but was moved to 2012 as a compromise between Republicans and Democrats.
Congress then extended the legislation for another year in June 2012, pushing back the expiration date to July 1.
The dispute between House Democrats and Republicans has been about how interest rates will be controlled in the future. While Republicans are asking for a more market-based approach that would see interest rates tied to the financial market, Democrats are looking for more protection for students and their parents.
Ohio Representative Joyce Beatty spoke before the U.S. House of Representatives Wednesday about allowing the interest rate to increase, according to a press release.
“Students and their families deserve access, not obstacles, to higher education opportunities, and in these tough economic times, should not have to bear the brunt of Congress’ inability to take common sense action,” Beatty said, according to the release.
Only interest rates for federally subsidized loans will increase. Rates for other federal student loans, such as federal unsubsidized loans, PLUS loans or Perkins loans, will not rise, Stemper said.
Federal subsidized loans make up about 26 percent of all federal student loans, according to the Congressional Budget Office.
Unlike federal unsubsidized and PLUS loans, interest is not added on to subsidized loans while a student is in college. Those who take out subsidized loans are required to begin the repayment process six months after graduating or leaving college as the interest rates go into effect, according to the Office for Federal Student Aid.
Adam Bernard, a fourth-year in business operations, believes the interest rate increase will make post-graduation life harder for many students.
“I think it’s unfortunate for students who are trying to pay for schooling. Many students getting prepared for graduation now will have a setback in their financial status,” Bernard said.
Matt Hager, a third-year in marketing, is worried about the financial and emotional stress the increase might have on his peers in the future.
“I can see this increase putting a lot of stress on friends of mine, causing them to struggle to get off their feet after graduation,” Hager said. “Some will be forced to move back home, others might even have to postpone their graduation.”
The interest rate increase is only part of the ever-increasing cost of a college degree.
With about $1.1 trillion in federal student loans outstanding, the average student-loan debt for those who graduated in 2011 was about $26,500, according to The New York Times.
It takes students with loans an average of 21 years to repay it all, according to a One Wisconsin Institute survey.
Although OSU’s tuition has been frozen for in-state undergraduate students for the 2013-2014 school year, non-resident tuition is set to rise 2 percent to $15,720 a year.
Instructional fees increased by 3.5 percent for the 2012-2013 academic year while mandatory fees were frozen, so students experienced an overall 3.2 percent increase in rates.