On July 1st, the high cost of a college education is about to become even more unaffordable for more than 7 million students.
Families who took out subsidized loans will see their interest rates double from 3.4 to 6.8 percent. While this hike can be prevented, Congress and President Obama cannot agree how to stop it.
The House recently voted to stop rates from doubling this year, but allowed them to vary over the life of the loan. The Obama administration threatened to veto this bill in a statement, calling H.R. 1911 the “wrong approach.”
Instead, Obama is pushing what he describes as a “long-term solution” to guarantee rates over the life of the loans, ensure that future rates align with the government’s cost of borrowing, and cap payments to 10 percent of income.
Meanwhile, Senate Democrats propose to make the loans at-cost while eliminating tax breaks for other industries such as oil and gas. Senate Republicans propose for loan rates to vary from year to year but fix the rate over the life of the loan.
Last year, the president worked with Congress to grant a one-year extension on the rates.Both parties spent weeks in a back-and-forth over how to pay for $6 billion cost of the student loans, which, according to Fox News, resulted in a one-year extension on the rates. The government raised $5 billion by lowering the tax deductions companies receive for pension contributions.
This year, cooperation seems unlikely as the House, Senate, and the President each push different solutions.
The impending rise of rates is certainly a concern for students. According to the latest college study from Fidelity Investments, 70 percent of the class of 2013 graduated with college-related debt, averaging $35,200. Meanwhile, 50 percent of this class are surprised by how much debt they accumulated. Up to 39 percent would have made different choices related to college planning had they better understood the debt consequences.
While students struggle to pay off their debt, the government will rake in $51 billion from federal student loans, according to a report by the Congressional Budget Office.