It’s deja vu all over again. I feel like I’m watching a terrible rerun of last summer.
Unless Congress acts in the next few days, federal subsidized student loan interest rates double from 3.4 percent to 6.8 percent on July 1.
And like last summer, this debate doesn’t matter.
Yeah, but I have subsidized loans!
You may be one of the 7 million students who borrow federal subsidized loans every year. And subsidized loans are a beautiful thing. If you demonstrate enough financial need and qualify for a subsidized loan, the government will pay for any interest that accrues while you’re in college. That’s a sweet deal.
So for all of the subsidized loan borrowers out there, you’ve got good news: If you’ve already received a subsidized loan, you won’t be affected by Congress’ next move. Only subsidized loans issued after June 30, 2013 would be impacted by the rate hike (and only for undergraduate students).
But you may be looking to borrow after the July 1 deadline. And I’m sure just hearing that your loan’s interest rates could double might send you into a panic.
I mean, doubling an interest rate on a loan is pretty a big deal, right?
But if student loan interest rates double, won’t I being paying a ton more?
Sure, if interest rates double, it means the total that you end up paying over the lifetime of your subsidized loans will increase. That’s easy math. But your total debt won’t go up by as much you think.
According to The Institute for College Access and Success (TICAS), increasing the interest rate to 6.8% would cost borrowers an extra $4,000 over the lifetime of their loans (that’s under a standard 10-year repayment plan and assumes that you’re borrowing the maximum in federal subsidized loans each year).
$4,000 across 10 years… that’s $400 a year… that’s $33.33 a month.
$33.33 a month? That’s what the big fuss is all about? That’s a meal out. That’s a pair of jeans. That’s what I spend on a weekend shopping spree at Goodwill.
I’m a frugal lady. I know that ever dollar matters, and paying an extra $33.33 a month could be a major blow to someone’s budget.
But in the grand sceme of things, Congress should not be focusing on legislation that would only save students $33.33 a month. We’ve got bigger fish to fry. Thousand dollar fish.
This is the wrong debate to be having in Congress.
The debate over whether or not to let student loan interest rates double is a bandaid larger issue.
Instead of supporting student borrowing with lower interest rates, how do we help students borrow less?
Let’s have a real conversation about college affordability. We need to talk about real solutions to help families make the most appropriate and affordable decision around post-secondary education. We need to talk about providing enough need-based grants to families that need it most. We need to talk about holding more colleges and universities accountable for student loan default rates, student loan debt loads and increasing tuition prices.
Those are the kinds of issues that could save a student borrower tens of thousands of dollars.
And until someone is ready to have a broader conversation about these bigger issues, I’m not going to listen to the debate in Congress over a measly $33.33 a month.
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