Looking For A Solution To The Jump In Student Loan Interest Rates

"Antonya Bruno, a senior at Howard University, has used the maximum amount of federal loans over the last three years to help pay her steadily climbing tuition. ... Because of a political stalemate, however, Bruno will see the interest rate on her new loans double to 6.8% unless Congress can pass a retroactive fix," the Los Angeles Times reports. "It could add $1,000 over the life of her loans, and cost new students four times as much. ... Bruno and students all over the country are the victims of an impasse cutting across party lines in Congress that led to the rate increase, effective July 1. Some Democrats are pushing for a short-term extension of low rates, while a bipartisan group of senators is seeking support for different variations of a proposal to deal with the problem over the long term by linking interest rates to the bond market. That long-term change, a central idea of recent proposals by Republicans, Democrats and the White House, would tie all federal student loan interest rates to the government's cost of borrowing. This could help student and family borrowers by offering low rates and getting the matter out of the political arena, according to University of Michigan professor Susan Dynarski and Indiana University professor Don Hossler, both experts on higher education. Republicans and the White House proposed tying student federal loan interest rates to the 10-year Treasury borrowing rate, 2.5%, on July 1, plus an added markup. A Democratic proposal preferred the Treasury's 91-day T-bill rate. However, as the economy improves, rates will increase, creating a need for protections for borrowers, some say. Under the bipartisan proposal, rates on these federal Stafford loans could surpass 6.8% by 2017 if interest rates go up as projected. No caps on loan rates are included in that proposal. ... Sen. Jack Reed (D-R.I.) says a one-year extension would allow lawmakers to consider the issue during the upcoming reauthorization of the Higher Education Act. ... Another extension will still leave borrowers of unsubsidized Stafford and PLUS loans paying above-market interest rates, said Justin Draeger, president of the National Assn. of Student Financial Aid Administrators. The Senate is planning to vote Wednesday on an extension."

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