The new bill fixing student loan rates for one year may be a double-edged sword for some college students. While the new deal locks in the 3.4 percent rate undergraduate university students have had in the past, it also eliminates two federal subsidies for student loans
After months of arguing, Congressional Democrats and Republicans settled on a bill passed Friday that grants a one-year extension of the current undergraduate loan rate. The plan will be paid for by limiting companies’ tax breaks for pension payments and, more importantly for college students, by reducing certain federal subsidies for student loans.
The bill passed, 373 to 52, alongside a measure to stretch federal highway programs through 2014, and another to extend the National Flood Insurance Program for five years.
As a result of the cuts undergrads will now be forced to begin paying off their loans immediately following graduation. Previously, students were given a grace period of six months. In addition, the cuts mean advanced degrees will no longer be eligible for federally subsidized loans.
Friday’s bill passed under pressure of a July 1 deadline. If Congress had failed to come to terms, the loan rate would have doubled to 6.8 percent. While the majority of both parties have long agreed on keeping student interest rates low, they couldn’t agree on how to pay for the $6 billion extension.
About one-third of students at public four-year colleges pay full tuition and have no grant assistance, according to October 2011 figures from the College Board, the nonprofit that administers the SAT. They also found that over the last decade, tuition at such schools has risen faster than average consumer costs.
Students throughout the country greeted the news of a breakthrough with mixed feelings. While the steady rate is a blessing, the cut subsidies are a major concern.
Marissa Blackwell, 19, a rising junior at Oberlin College, says that it’s frustrating to have distant representation.
“It’s been a bit stressful because you feel that your fate is in somebody else’s hands to a certain extent,” she said. “I feel that socially the idea is that education is a commodity and people feel that it doesn’t have to be protected and students don’t need a break – and that’s really frustrating. “
But the deal affected more than just undergraduates. Jessica Marcrum, 27, is a graduate of an Indiana University masters program. She says though a doubling of the rate would have crippled her financially, she still would have had to take the loan.
“If that rate had doubled, I would have been so screwed,” she said. “I probably still would have taken them out, it just would have been more dread than it was already.”
Because the rate is only locked in for one year the reprieve may only be temporary, leaving the future uncertain.
“It’s a big win for students and their families who are facing a perfect storm in terms of college costs,” said Mamie Lynch, research and policy analyst at The Education Trust, a nonprofit that lobbies for policies that help students — especially poor and minority students — get in and through college.
College tuition is rising, Lynch said, and the spending power of the Pell Grant is falling.
“It’s good that Congress put aside partisan bickering,” she said. “But it is kicking the can down the road for a year,” and capping one program to fund another was, “robbing Peter to pay Peter.”
Eunice Ro of The Chicago Bureau and Maggie Lee contributed to this story.