Photo by Adam Fagen
As students across the country return to school this week, the good news is that lawmakers from both sides of the aisle came together to pass an important piece of legislation that President Obama then signed it into law. The bad news? The legislation will increase the cost of higher education for future college students.
Back on July 1 the interest rate for new federal student loans doubled, jumping from 3.4 percent to 6.8 percent. Student organizations and advocacy groups worked tirelessly to convince lawmakers to maintain the 3.4 percent rate. The legislation that ultimately passed did bring the rate back down – to 3.9 percent for undergraduates – and that was a victory for students, certainly, but one that may be short-lived. That’s because the new legislation also linked student interest rates to market interest rates, and as the economy strengthens interest rates are likely to rise sharply.
According to the new law, the interest rate on federal student loans can rise as high as 8.25 percent for undergraduates, 9.5 percent for graduate students, and as high as 10.5 percent for parents borrowing on behalf of their children.
Some lawmakers spoke out against the deal. In a statement on the Senate floor, Senator Elizabeth Warren (D- MA) noted that the federal government stands to make $184 billion in profit on student loans over the coming decade, and she called that “obscene.” She laid out three goals for future legislation: (1) eliminate government profits on student loans; (2) refinance existing student debt; and (3) bring down the cost of a college education in this country.
Those are worthy goals. In the meantime, though, the new law is projected to add an additional $16 billion in government profit on student loans to the previously projected $184 billion over the coming decade.
Senator Tom Harkin (D- IA), the Chair of the Senate Committee on Health, Education, Labor, and Pensions, originally opposed the legislation. He ultimately supported it, but he has also requested a Government Accountability Office report to chart how the cost of higher education has grown over time. He wants that report to guide future negotiations about student borrowing costs and the federal role in access to higher education.
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