Some Arkansas students have been “kind of freaking out” since interest rates on one type of college loan doubled July 1, according to Amy Neathery, student services coordinator for the Arkansas Student Loan Authority.
The interest rate on subsidized Stafford loans, which account for about one-fourth of all federal student loans, doubled from 3.4 percent to 6.8 percent July 1 after a temporary freeze expired and Congress was unable to agree on extending the freeze or replacing it with a new agreement.
The House and Senate took a week-long recess for the July 4 holiday but have pledged to revisit the issue when they return this week.
“We’ve even had borrowers call and say, ‘OK, is this going to affect us?’” Neathery said. “It’s only affecting new borrowers. Students that already have student loans, it will not affect them. And we don’t think that it will even affect the new borrowers; we think Congress will get this worked out.”
The interest rate has been above 6 percent before. Congress passed a law in 2007 to reduce the rate gradually from 6.8 percent to 3.4 percent over four years, but the law expired in 2012. The rate became an issue during last year’s presidential race, eventually leading to a deal to freeze the rate at 3.4 percent for one year.
Democrats and Republicans have blamed each other for letting the rate jump.
Candace Martin, Democratic Party of Arkansas spokeswoman, charged in a news release last week, “Congressmen (Rick) Crawford and (Tim) Griffin voted to make students pay more and refused to consider any fair or balanced solution to avert the rate spike.”
Crawford, R-Jonesboro, Griffin, R-Little Rock, and Rep. Steve Womack, R-Rogers, voted for a proposal by House Republicans to set the rate at the U.S. Treasury rate, plus 2.5 percent for Stafford loans, with an 8.5 percent rate cap. The rate would be readjusted every year. The House passed the bill, but President Obama threatened a veto.
David Ray, spokesman for the Republican Party of Arkansas, said the blame rests squarely on the shoulders of Democrats.
“The Republican student loan fix was based on the proposal that President Obama outlined in his fiscal 2014 budget,” he said. “So it’s almost crazy that the president would want to veto our fix. Arkansas Democrats haven’t done anything to prevent student loan rates from rising. All they’ve done is send out press releases.”
Obama proposed setting the rate at the U.S. Treasury rate, plus 0.93 percent for subsidized Stafford loans, with no cap.
The president also supported a plan by Senate Democrats to extend the 3.4 percent rate for two years. Sen. Mark Pryor, the only Democrat in Arkansas’ congressional delegation, voted for the plan, while Sen. John Boozman, R-Ark., voted against it. The plan received 51 votes, not enough to break a filibuster.
Ray said Republicans rejected the two-year extension because it would just “kick the can down the road” instead of creating a permanent fix.
In Arkansas, out of $700 million in federal student loans awarded for the 2011-12 academic year, $315 million was awarded in subsidized Stafford loans, which are for moderate-to-low-income students.
The federal government reported that 78,895 subsidized Stafford loans were awarded in Arkansas, although the number of students who received the loans is probably lower because some students technically received more than one loan during the year and some parents also obtained loans for their children, according to the Arkansas Student Loan Authority.
Interest rates affect students not when they take out a loan but when they begin paying it off. It’s an especially important issue in Arkansas, Neathery said.
“Arkansas has one of the highest student loan default rates,” she said. “We are No. 3 in the nation. We go back and forth between 2 and 3.”
Arizona has a lock on the top spot because the University of Phoenix has campuses around the world. Colorado is currently ranked second in student loan defaults.
At the University of Arkansas at Little Rock, financial aid adviser Camille Guess-Mitchell said the questions she has received about the rate increase have mostly been from nontraditional students who have some experience paying off student loans.
“Students right out high school, they really have no concept,” she said.
Guess-Mitchell is one of those nontraditional students: This fall she plans to resume her college studies after a 10-year-break, with the help of a Stafford loan. She said she remembers when the interest rate was 6.8 percent years ago, so she could live with that rate again, if necessary.
“I started off originally thinking, ‘OK, if I need to, I’ll use credit cards for books,’” she said. “The (6.8 percent) interest rate comparatively speaking is still low. Do I wish it was lower? Always.”