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Area students air views on possible interest rates on federal loans

July 08, 2013|By KAREN MAWDSLEY | kmawdsley@schurz.com

For some students, paying for college could be more expensive this fall if Congress does not retroactively reach a compromise after failing to agree on a plan by the July 1 deadline to prevent interest rates on some federal student loans from doubling.

Interest rates on federally subsidized Stafford student loans rose from 3.4 percent to 6.8 percent on July 1.

Depending on what Congress does when it takes up the issue after reconvening Monday, the increased rate might or might not be in effect for the fall semester.

Subsidized Stafford loans are offered by the federal government to college students who demonstrate financial need based on the information they provide through the Free Application for Federal Student Aid, or FAFSA.

With subsidized loans, the federal government pays the interest rate, while the recipient is enrolled as at least a half-time student, during a six-month grace period after such enrollment ends and during approved deferment periods.

A particular draw of federal loans often was their relatively low interest rate compared with their private-sector counterparts.

Subsidized Stafford loans compromise about a fourth of all direct federal borrowing, the Associated Press has reported.

“I’ve always been pretty poor and struggled, so to me, the hike is yet another increased fee,” said Nkongho Beteck, who in the fall will be a junior at the University of Maryland, where she is studying journalism using student loans.

Beteck, from Salisbury, Md., described the increased rate as motivation to “get yourself in gear and really focus. ... (but) this still puts lots of pressure on me to land some type of job months before I graduate, so I can begin to pay off my loans.”

Sandra Tarbox, the director of financial aid at Shippensburg (Pa.) University, said she doesn’t see the interest rate increase as a problem.

“My biggest concern is the media hyping it, and it’s scaring students and parents,” she said. “They need to realize it doesn’t mean their payment will be doubled. It’s just the interest rate that’s changing.”

If a student borrows $23,000 in subsidized Stafford loans — the maximum amount — over the course of his or her undergraduate years and repays it in 120 monthly installments, the standard monthly payment is likely to be about $226.36 at the 3.4 percent interest rate and $264.68 at 6.8 percent.

Aditya Dilip, a rising junior at the University of Maryland who depends on student loans, said the rate hike would hurt him financially.

“The amount of loans determines what I want to do after college: Should I go to law school or grad school? Should I work, pay off some loans and save for the future?” said the government and politics major from Annapolis.

While Dilip still has two more years in college to weigh his options, Megan Ratliff — a New Jersey native who graduated in 2012 from Carnegie Mellon University, where she studied fine art and cultural anthropology — doesn’t have that kind of time.

Ratliff used federal and private loans throughout her collegiate career and now owes “about as much as one full year at CMU costs — if I were a commuter,” she said.

“My private loan rates are actually cheaper than the new federal rate,” said Ratliff, who has been working for the past year with an art outreach program in Philadelphia.

“These new interest rates are going to exacerbate the already overbloated collective student debt, as well as deter prospective students from pursuing their academic goals in the face of having to pay even more for higher education,” she said. 

University of Maryland Financial Aid Officer Sean Perry said: “It’s likely to have an effect on students’ decisions financially. ... They’re going to have to think twice ... weigh the pros and cons.”

Perry said university financial aid offices can try to “go into some of our institutional funds to meet student need,” and he encouraged students to apply for merit-based aid.

The Senate likely will vote Wednesday on a one-year extension that would restore student loan interest rates to their previous level, according to multiple news sources.

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