Student Loan Interest Rates Set to Double Unless Congress Acts
The interest rate on student loans is set to double Monday, if Congress fails to act. Right now, the rate on federal Stafford loans is 3.4 percent, but it would jump to 6.8 percent.
For months, House Democrats and Republicans have been at odds over proposed changes. One issue is whether student loan rates should be tied to market rates.
There is consensus on the problem – student loan debt is in crisis. Scott Ross is executive director of the advocacy group, One Wisconsin Now.
“Student loan debt is well over $1.2 trillion. Student loan debt passes every other consumer debt in the United States with the exception of mortgage debt. And student loan debt increased for people during the great recession,” Ross says.
Ross says that debt can drag down the economy. Until borrowers climb out of the hole, they may delay big purchases.
“Not only are you two-thirds more likely to buy used as opposed to a new car if you have student loan debt, you are two-thirds more likely to be a renter instead of a home owner, if you have student loan debt, Ross says.
According to Ross and the UW System, the average four-year graduate here borrows between $20,000 and $30,000.
“And the length of debt for a four year degree in the state of Wisconsin is leaving borrowers with nearly 19 years to pay off that student loan debt at a cost of about $350 a month,” Ross says.
If you do the math, the grand total to pay off is just shy of $80,000. At the same time, plenty of students end-up underemployed or never earn a degree. The delinquency rate on federal loans exceeds 10 percent.
Unlike consumer loans, people cannot refinance their federal student debt or shed it through bankruptcy.
Among strategies politicians are floating - tying student loans to market rates but with caps, allowing refinancing or forgiving loans after 20 years of payments.
Then again, leaders may simply extend the 3.4 percent rate for now.
Many students have until August to sign.