New subsidized loans’ interest rates set to double on July 1 if Congress doesn’t act

Lance Lysowski

Kent State students taking out new federal subsidized loans in 2013 will see their interest rates double on July 1 if Congress cannot come to an agreement.

For the second year in a row, Congress must agree on a budget plan that includes enough money to keep interest rates for federal subsidized loans at 3.4 percent.

Last year, the House of Representatives failed to come to an agreement on the federal subsidy’s interest rates so a one-year extension was agreed to as a compromise. The subsidized loan program is a federal subsidy, which allocates money to students to pay for college and assumes the cost of interest while the student is in school. In comparison, unsubsidized loans are those such as Perkins Loans, which the student is responsible for the 6.8 percent interest rate from the time the loan is taken out.

According to Mark Evans, director of student financial aid at Kent State, the financial aid staff has been preparing for a possible rate increase since Nov. 2011 by educating incoming students, including the 6.8 percent figure in reading materials and informing students to be aware of the July 1 deadline.

“We would encourage students to borrow widely — use loans as a last resort,” Evans said. “Consider payment plans possibly to offset some of the remaining balance so you don’t have to borrow it all. I would hope that the increase in the interest rate is averted because the country needs to be investing in education for students and for the future of the country.”

Erik Zemljic, an economics professor at Kent State, said the increase would ultimately lead to less people taking out subsidized loans and going to college.

Zemlijic said students should consider the cost-benefit of a college education.

“The cost in the cost-benefit calculation has increased so less people will go to college,” Zemljic said. “You also have to think about what is the return on a college education? People should look at a college education as buying a stock or starting a company. There is a rate of return.”

Ultimately the rate of the return is determined by whether a student finishes with a degree or not. Zemljic said, each year a student completes raises their rate of return on the investment they made in their education and finishing would bring the highest return. While interest rates rising is expected to cost students in the long run, Zamlijic said the returns of a college education, including the opportunity to network and receive professional training, are ultimately worth the investment.

The potential rise in interest rates would only affect students taking out new subsidized loans. Students with outstanding loans will not see their rates increase. As Congress begins to reshape the U.S. economy, neither party has come to an agreement when it comes to student aid for higher education.

Neither the Democratic nor Republican party’s budget has money set aside in their proposed budgets for the rates to remain at 3.4 percent, which according to the Associated Press, would cost taxpayers an additional $6 billion. While neither budget has yet to solve the issue, both parties have spoken of a desire to keep the rates as they are.

House Republicans, led by Budget Committee Chairman Paul Ryan, have outlined a plan, which would shift rates back to pre-2008 levels. In 2007, Congress lowered the interest rate to six percent for new loans started during 2008, then down to 5.6 percent in 2009, down to 4.5 percent in 2010 and then to the current 3.4 percent in 2011. The plan would essentially allow for more money to be allocated elsewhere for the first few years of President Obama’s second term. Obama is expected to announce his budget plan in the coming weeks.

Congressman Tim Ryan, a democratic U.S. Representative for Ohio’s 13th congressional district, said he strongly supports interest rates remaining the same because of the importance of higher education and was a co-sponsor of the agreement that led to the one-year extension.

“Making education more affordable is a worthy investment in America’s future,” Ryan said. “I am disappointed that my Republican colleagues’ budget makes college degrees harder to obtain than easier. Everyone in this country should have the ability to further their education, and I will continue to do everything in my power to keep that dream within reach.”

Megan Seitz, a junior communications studies major and student organizer for the Ohio Student Association, has used her internship as an opportunity to raise awareness of the rate increases’ potential impact. The Ohio Student Association is a non-profit advocate organization dedicated to working to help college students.

Seitz, a member of the Kent Communication Society, received an internship with the Ohio Public Interest Research Group and chose student aid as her primary focus. She has organized volunteers to reach out to students about the rate increase and has started a petition that she plans to send to congress.

Seitz has posted her petition online, which can be found at the Ohio PIRG Facebook page, or it can be signed in-person by contacting her or the Young Democrats Society. As she continues to spread the word on campus, Seitz is hopeful Congress maintains the current rates.

“It’s very critical that we raise student awareness, get petition signatures and show Congress that this is really an important issue,” Seitz said. “They aren’t going to postpone it another year, whether we like it or not. Any student who has federal loans and student loans, this will affect them.”

Contact Lance Lysowski at [email protected].