Skip to content
Subscribe

Increased Student Loan Rates Will Have Lasting Impact on Economy

Published:
student loan rates

zimmytws / shutterstock.com

After the interest rate for subsidized Stafford loans went from 3.4 percent to 6.8 percent at the beginning of the month, student advocacy groups vowed not to take the increase lying down.

The new rate "will cause the average college student to pay an extra $1,000 per year, per loan," according to Robert Applebaum, executive director for StudentDebtCrisis.org. For that reason, Applebaum says his organization and others plan to fight the issue until Congress is forced to pass an extension of the previous interest rate. It may not be an easy fight, as the Senate failed in an attempt to lower rates on Wednesday.

Sophia Zaman, vice president of the United States Student Association, made a similar estimate, adding that students could expect to pay a total of $4,000 extra over the lifetime of a loan.

Some estimates are not as drastic, but still raise concern.

Jon Fansmith, associate director of the American Council on Education, said the average student loan borrower could expect to see his or her monthly payments increase by $25 if Congress doesn't act.

"Since subsidized loans go to students with demonstrated financial need, the increase is hitting the very students who can least afford it," he pointed out.

These calculations would increase yearly payments by $300, rather than $1,000.

Besides putting a financial burden on students ill-prepared to carry it, the increase in federal rates might push students to take out risky private loans, according to Shannon Gallegos, communications coordinator for the Institute for College Access and Success.

"Private loans are one of the riskiest, most expensive ways to pay for college," she said. "Like credit cards, they typically have variable interest rates that are higher for those who can least afford them, and private loans do not provide the important deferment, income-based repayment, and loan forgiveness options that accompany federal student loans."

All sources agreed that no one really wants to see loan rates double, but inaction may continue due to what Fansmith described as "fundamental disagreements" within Congress about the best ways to resolve the issue.

While the increase would result in more revenue for the government, activists question if it's right to profit off a program intended to help students in need. That concern becomes particularly poignant, given that the government is already set to make $50 billion from student loans this year, according to the Congressional Budget Office, and that's based on the 3.4 percent interest rate.

"We should be investing in our nation's students and ultimately next generation of leaders," Zaman said. "Not treating them as profit margins."

Burdening America's future workers and leaders is a concrete concern, as Gallegos pointed out with data from the Federal Reserve Bank of New York. While educated people are more likely to buy homes, a survey of 30-year-old Americans showed that those with student loan debt were less likely to have mortgages, meaning that graduates might be putting off important economic and social steps like home ownership until they can pay down their student loans.

In other words, what might seem like a small thing now -- an extra $300 or $1,000 a year -- could have a long-lasting impact, affecting when Americans are ready to make big purchases like cars and homes, and when they start families of their own.

Zaman put it bluntly:

"If we don't invest in students now, we're crippling our nation's economic future," she said.

Adhere to the IVN etiquette

By posting a comment, you agree to adhere to our etiquette rules: No partisan attacks, no personal attacks, substantiate your sources, no self-promotion.

Contact IVN

Questions about this article or our coverage? Send us a message. A free IVN member account is required.

Message sent

Thanks, we’ll review it and get back to you if needed.

Message not sent

Sorry, something went wrong. Please try again.

Sign in to send a message

Messages are tied to your IVN member account. Signing in is free and takes a few seconds.

Contact IVN

Questions about this article or our coverage? Send us a message. A free IVN member account is required.

Message sent

Thanks, we’ll review it and get back to you if needed.

Message not sent

Sorry, something went wrong. Please try again.

Sign in to send a message

Messages are tied to your IVN member account. Signing in is free and takes a few seconds.

Republish this article

Republishing guidelines

Republish IVN articles for free. Independent Voter News articles may be republished online or in print under a Creative Commons BY-NC-ND 4.0 license, on these terms:

  1. Credit the author and IVN. Keep the byline ("By Author Name, Independent Voter News") and the attribution note at the end, which links to the original.
  2. Keep the meaning. You may update time and place references and apply your house style. You may trim for length, as long as the cuts don't change the meaning or misrepresent the author. Keep the headline. Mark any additions as your own (for example "Additional reporting by ...").
  3. Translations are welcome. Translate faithfully, add "Translated from English by [your outlet]", and tell us at editor@ivn.us.
  4. Keep the links, including the link to the original article.
  5. Keep the tracking image. The HTML includes a 1-pixel image that counts readers on your page. It collects no personal information.
  6. Photos and illustrations. Images credited to IVN may be used with this article only. Images credited to others (AP, Getty, Unsplash, Wikimedia and so on) stay under their owners' terms. Secure the rights or switch "Include images" off.
  7. Don't sell it. You can't sell our articles or sell ads specifically against them. Your normal site advertising is fine.
  8. No implied endorsement. Don't suggest that IVN or the author endorses you, your candidates or your causes, or that donations to you support IVN.
  9. Keep labels. Opinion or analysis pieces keep that label.
  10. Point search engines to the original. Where your CMS allows, set the canonical URL to the original IVN article.
  11. No bulk or automated republishing, and don't submit our articles to aggregators (Apple News, Google News, MSN) as your own.
  12. Corrections and removals. Update your copy when we correct it, and remove it promptly if we ask. We'll contact you at the email you give us.
  13. Questions or print republication: editor@ivn.us.

IVN staff: fill in who you're inviting above, then create the invite.

Preparing the article

Increased Student Loan Rates Will Have Lasting Impact on Economy

Choose a format
  • HTML
  • Email HTML
  • Markdown
  • Formatted (.docx)
  • Plain text
  • WordPress blocks
  • PDF
Choose a platform

Photos credited to others need their owners' permission.

To for

Republishing somewhere else? Questions? editor@ivn.us