WASHINGTON — Hoping for a federal student loan to help pay for college?
Beware, because the interest rates are set to double July 1 unless Congress and the White House find a way to avoid another looming political standoff.
The White House is pushing for an extension of the current interest rate of 3.4 percent. Without it, the rate will climb to 6.8 percent for more than 7 million students across the country, and the average loan recipient would be another $1,000 in debt, according to White House spokesman Matt Lehrich.
We must keep rates low so more Americans get a fair shot, a more affordable education and a clear path to the middle class, Cecilia Muñoz, director of the White House Domestic Policy Council, said Monday in a conference call with reporters.
The Obama administration also released a state-by-state list of how many students would be affected by the interest rate change, which would apply to federal Stafford loans for undergraduates. In Missouri, for example, the impact would be felt by more than 161,000 students who take out federal college loans each year; in Kansas, about 78,000 students.
President Barack Obama will take his student loan campaign on the road with stops Tuesday at the University of North Carolina at Chapel Hill and the University of Colorado at Boulder, and Wednesday at the University of Iowa.
The issue also fits into the presidents re-election strategy of emphasizing opportunity and addressing the economic concerns of everyday Americans.
The presumptive Republican nominee, former Massachusetts Gov. Mitt Romney, issued a statement Monday expressing support for maintaining the current interest rate.
Given the bleak job prospects that young Americans coming out of college face today, I encourage Congress to temporarily extend the current low rate on subsidized undergraduate Stafford loans, Romney said. I also hope the president and Congress can pass the extension responsibly, that offsets its cost in a way that doesnt harm the job prospects of young Americans.
Muñoz said that keeping the current interest rate on student loans would cost taxpayers $6 billion because the lower the rate, the higher the governments costs.
A bill to maintain the current rate, sponsored by Democratic Rep. Joe Courtney of Connecticut, has 126 Democratic co-sponsors but no Republicans.
Republican. Rep. John Kline, chairman of the House Committee on Education and the Workforce, said in a statement: We must now choose between allowing interest rates to rise or piling billions of dollars on the backs of taxpayers. I have serious concerns about any proposal that simply kicks the can down the road....My colleagues and I are exploring options in hopes of finding a responsible solution that serves borrowers and taxpayers equally well.
The current rates resulted from a 2007 law that reduced the interest rate on Stafford loans over four years, dropping them to 6.0 percent in the first year and gradually down to the current 3.4 percent rate.
If Congress allows the rates to reset to 6.8 percent, its going to be an expensive freeze, said Nancy Merz, director of financial aid and scholarships at the University Missouri-Kansas City. The problem is students are getting further into debt all the time.