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Alarm over possible spike in student loan interest rates

Sonoma State University student Patrick Maloney works at his job at Residential Life on the SSU campus, Thursday May 2, 2013 in Rohnert Park.

(Kent Porter / Press Democrat)
Published: Thursday, May 2, 2013 at 4:36 p.m.
Last Modified: Thursday, May 2, 2013 at 4:36 p.m.

Interest rates on some popular federal student loans are set to double in two months, a prospect that has alarmed students, parents and activists concerned about soaring student debt.

“It's ridiculous,” said Patrick Maloney, a Sonoma State University junior who is involved in California State Student Association lobbying efforts to prevent the rate increase.

“It's disappointing and yet another instance where higher education is not being fully supported,” said Maloney, a senator on SSU's student government body, Associated Students.

A U.S. Senate resolution would indefinitely extend the current rate of 3.4 percent on subsidized Stafford loans. But the House of Representatives budget plan would allow the rates on those loans to climb to 6.8 percent on July 1, as is currently scheduled. That would affect all future borrowers.

Also, President Barack Obama's budget proposal would lift the cap on interest rates for all student loans. Without it, based on Congressional Budget Office projections, unsubsidized student loan rates could hit 8 percent by 2013.

“In talking to students and parents, there is a lot of concern, said Susan Gutierrez, SSU director of financial aid.

“It's definitely concerning,” said Melanie Bartlett of Santa Rosa, who has a son in high school, a daughter in middle school, and another son about to transfer from Santa Rosa Junior College to either UCBerkeley or UCDavis.

“We're going to do everything we can, because I would love to put my kids through college without taking loans, but I don't think that's realistic,” she said.

In the 2011-2012 academic year, 1,932 SSU students took out both subsidized federal loans, which are given on the basis of financial need and have no credit requirement, and unsubsidized federal loans, on which interest begins accruing immediately.

Last year when Congress faced the same rate-hike scenario, it extended the 3.4 percent rate until this July 1. But that one-year extension took place in an election year. This year, with lower immediate political stakes, the chance of a similar step is uncertain.

“No one can say,” said Lauren Asher, president of the Oakland-based Institute for College Access and Success, which advocates for affordable higher education. “Last year it happened at the last minute that it was frozen.”

Rep. Mike Thompson, D-St. Helena, last week introduced a bill to extend the lower rate for two years. He acknowledged in a an interview Thursday that the House Republican majority has steadily blocked the Democrats' agenda this year. But he predicted that his bill, H.R. 1433, or some action to extend the lower rate, would pass.

“The last time the Republican majority was absolutely against doing anything, that didn't last too long,” he said. “They heard loud and clear from their constituents that education is important and that hardworking families are saddled with enough financial troubles.”

To choose an off-year to not extend the current rate “would be pretty transparently a flagrant violation of the public trust,” Thompson said.

The interest rate hike is the type of issue that often floats right up to the deadline before being settled, said David McCuan, a SSU political scientist.

In the end, he said, “Republicans would likely kowtow to pressure because the Stafford loan ... affects both Republican and Democrat families.”

Increasingly though, even such traditionally bipartisan issues are being contested, McCuan said, as a large and growing caucus of Tea Party Republicans willing to risk a backlash pushes for uncompromising fiscal constraints.

“They have changed the rules on issues that we tend not to debate or that in the past were more pro forma,” McCuan said.

It is likely that Thompson will be a key to any extension, should one be adopted, McCuan said.

“Mike is also a dealmaker and an important player in the middle,” he said. “So if anything is going to happen, it's going to happen that he's involved with it or part of it.”

(You can reach Staff Writer Jeremy Hay at 521-5212 or jeremy.hay@pressdemocrat.com.)

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