Interest rates on federally subsidized student loans will drop after the United States House of Representatives passed a bill July 31 to reduce the recently increased rates, but some Ohio State students still feel the rates are too high.
After passing in the Senate last week, the House voted 392-31 in favor of the Bipartisan Student Loan Certainty Act of 2013, which lowers student loan interest rates for federally subsidized Stafford loans taken out this fall 3.86 percent. The bill has gone to President Barack Obama for him to sign into law.
Congress had failed to reach a deal to keep interest rates at 3.4 percent before a July 1 deadline, causing rates to double to 6.8 percent.
The increase would have cost each student with a subsidized loan an additional $2,600 on average, according to Congress’ Joint Economic Committee.
Joey Collart, a third-year in civil engineering at Ohio State, believes the rates are still not low enough.
“I definitely think the rates should be lower,” Collart said. “As you start your career, that’s when you’re going to be making the least amount of money, and it’s always going to be hard to get a head start when rates are so high right out of college.”
Other OSU students, though, believe the new bill is a step in the right direction.
“I think Congress was right to quickly find a solution (to rates doubling on July 1) to the problem they caused, but I think students should still have some worries in the future,” said Alex Praznik, a fifth-year in hospitality management.
The cause of the hike began in 2007, when Congress passed the College Cost Reduction and Access Act, 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, making the expiration date July 1.
The dispute between House Democrats and Republicans that prevented any earlier deals from being passed was about how interest rates will be controlled in the future. While Republicans asked for a more market-based approach that would see interest rates tied to the financial market, Democrats were looking for more protection for students and their parents.
While the new bill means interest rates will decrease, rates will still experience about a 13.5 percent increase since last year.
The latest bill fixed the interest rates on subsidized student loans to the rates of 10-year U.S. Treasury notes – if the rates of treasury notes rise in the future, so will the interest rates on federally subsidized student loans.
Interest rates will be locked, though, meaning the rate students are told they will pay when they take out the loans will be the rate they are obligated to pay later. The rate caps for the loans are also lower in the Bipartisan Student Loan Certainty Act, with undergraduate student loan interest rates capped at 8.25 percent.
There may still be increases in the rate over time, as the interest rates on 10-year Treasury notes is expected to rise to 5.2 percent by 2017. College students starting loans in 2017 could therefore face rates of about 7 percent, according to Congressional Budget Office projections.
Only interest rates for federally subsidized loans are affected by the Bipartisan Student Loan Certainty Act. The recently passed bill will not directly influence the interest rates for other types of federally funded loans or private loans.
Federal subsidized loans make up about 26 percent of all federal student loans, according to the Congressional Budget Office.
Unlike federally 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.
Praznik said the rates being fixed will help alleviate some students’ stress.
“As a student, you cannot sleep well knowing rates could be doubled by the time you graduate and are looking for a job,” Praznik said.