Student loan rates double without Congress' action - FOX 10 News | myfoxphoenix.com

Student loan rates double without Congress' action

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DETROIT (WJBK) -

College students' interest rates are at the mercy of Congress.

The interest rates on subsidized Stafford loans doubled from 3.4 percent Monday and could stay doubled unless Congress fulfills its pledge to restore lower rates when it returns from the Fourth of July holiday.

Lawmakers from both parties, as well as the White House, vowed to lower that rate before students started signing loan documents this fall. But the rate now stands at 6.8 percent - higher than most loans available from private lenders.

"To have students saddled with a 6.8 percent rate makes no sense and it's going to put an increasing burden on a time when more and more students need to take out a loan in order to finish their college education," said U.S. Rep. Gary Peters (D-Bloomfield Twp.).

"My loans, the interest rate is like doubling so it's crazy," said L.J. Gamble, a senior at Wayne State University.

According to Wayne State officials, nearly 18,000 students, including law and medical school, received a Stafford loan for the 2012-13 year, accounting for 56 percent of WSU students enrolled in fall and winter classes.

"We don't have a say in it," said Prachi Patel, a pre-med student. "It was just done."

Efforts to keep interest rates from doubling on new subsidized Stafford loans fell apart last week amid partisan wrangling in the Senate. Democratic senators and the White House both predicted a deal would be reached in Congress to bring the rates down again before students return to campus.

But if an agreement remains elusive, students could find themselves saddled with higher interest rates this year than last. Congress' Joint Economic Committee estimated the cost passed to students would be about $2,600.

Students only borrow money for one school year at a time. Subsidized Stafford loans taken before Monday are not affected by the rate hike, nor are federal PLUS, Perkins or unsubsidized Stafford loans slated for the coming year.

Subsidized Stafford loans go to needier students and often are coupled with other types of lending. Those loans make up roughly one quarter of all direct federal borrowing.

Both political parties tried to blame the other for the hike and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country.

Lawmakers knew for a full year the July 1 deadline was coming but were unable to strike a deal to dodge that increase. During last year's presidential race, both parties pledged to extend the 3.4 percent interest rates for another year to avoid angering young voters.

But the looming hike lacked sufficient urgency this year and Congress last week left town for the holiday without an agreement. Instead, the Democratic-led Senate pledged to revisit the issue as soon as July 10 and retroactively restore the rates for another year - into 2014, when a third of Senate seats and all House seats are up for election.

"Hopefully when we get back into Congress next week, we can pass legislation to make it retro-active, to make sure those students that enter this fall know that they have a 3.4 percent rate and not a 6.8 percent one," said Peters.

At the White House, a spokesman predicted a deal could be reached before students return to campus.

"We are confident they will get there and that the solution will include retroactive protection for students who borrow after July 1 so that their student loan rates don't double," Matt Lehrich said.

Even when lawmakers return, there's no guarantee there will be the votes to restore the lower rates. Efforts last week to reach a bipartisan agreement fizzled and there have been few examples of meaningful compromise in Congress.

- The Associated Press contributed to this report

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