Unless Congress acts, on July 1, the interest rate for 159,147 student loan borrowers in Wisconsin will double from 3.4 percent to 6.8 percent, according to a report by WISPIRG (Wisconsin Public Interest Research Group), a nonprofit, nonpartisan public interest advocacy organization.
The rate increase would hike the cost of Wisconsin students’ loans by $145 million. That translates into a $915 increase in debt per student, per loan, according to WISPIRG.
At issue is the interest rate for subsidized Stafford student loans. The 3.4 percent rate was set to expire in 2012, but Congress and President Barack Obama temporarily extended it for one more year. Now the interest rate is set to double to 6.8 percent on July 1 unless Congress acts to extend the current low rate.
Student debt is a growing hardship for many students and recent graduates, limiting their financial options and making it difficult for them to save up for buying a home or starting a family, according to the WISPIRG report. Last year, student debt nationwide hit the $1 trillion mark, passing credit card debt as the country’s top form of consumer debt. The average college graduate with loans in Wisconsin currently has $26,238 in student debt.
Subsidized Stafford student loans are offered to the neediest students, who get hit particularly hard by high levels of debt. Sixty-eight percent of all subsidized student loan borrowers are from families with incomes of less than $50,000.
“Keeping the interest rate low on student loans will make college more accessible and send an urgent signal to students, workers, and the unemployed to get the postsecondary training needed to adapt to new economic realities,” said Bruce Speight, WISPIRG director.
In addition, WISPIRG projected that, if Congress stops the interest rate from doubling, the $145 million saved by students could be spent in Wisconsin’s consumer economy rather than being used to pay down student debt.
The federal government is projected to collect 12.5 cents for each dollar loaned in the subsidized Stafford student loan program in 2013-14. In total, student loan programs are expected to generate $50 billion in revenue for the federal government this year.
“Congress should keep in mind that the ultimate goal of investing in students is to invest in our future economy. It is shortsighted to generate profits now off the backs of college students while pushing them deeper into debt in the process,” said Speight. “Students and families consider higher education to be an investment in the future. Yet Congress seems to be working against that investment – and unless they act now with the future of students in mind, then it’s about to get even worse.”
Several comprehensive student loan reform plans are pending in Washington, D.C.
