FOR IMMEDIATE RELEASE: June 25, 2012
SCHUMER: STUDENT LOAN RATES WILL DOUBLE IN ONE WEEK IF CONGRESS DOESN’T ACT; CALLS ON BOTH CHAMBERS TO QUICKLY APPROVE EMERGING DEAL BEFORE TIME RUNS OUT
One Week From Today, On July 1, Interest Rates on Federally Subsidized Stafford Loans Will Go from 3.4% -6.8% If Congress Doesn’t Act; Over 250,000 New York Students Will Pay Thousands of Dollars More to Pay for College
Senate Negotiators Close to Announcing Deal; Schumer Urges House to Support Senate Plan to Protect Families from Potentially $3,800 in Additional College Costs Over the Next Ten Years
Schumer: We Must Act Now, Or Middle Class Families Will Suffer
Today, U.S. Senator Charles E. Schumer called on Congress to quickly approve an emerging deal being negotiated in the U.S. Senate that would block an impending student loan interest rate hike set to take effect one week from today, on July 1. Without action, student loan interest rates for federally subsidized Stafford Loans will double from 3.4% to 6.8% for all new loans taken out by U.S. students, adding thousands of dollars in interest payments to the cost of attending college. In 2007, Congress lowered the rate on federally-subsidized Stafford loans – currently held by 8 million undergraduates nationally and over a quarter million students in New York. Without an extension of the reduced rate, interest rates will double driving up the cost of going to college for New York students by as much as $3,800 over a ten-year repayment period. Today, Schumer called on both chambers to quickly approve an impending Senate deal to block the rate hike before time runs out this week.
“We are one week away from students and families getting socked with thousands of dollars in additional costs to go to college, on top of already skyrocketing tuition,” said Schumer. “It’s vital that both houses of Congress quickly and publicly get behind and sign-off on the Senate deal that is currently in the works.”
Stafford loans are offered on the full faith and credit of the United States government and offered at a lower interest rate than they would be if a private company offered them. To receive a Stafford Loan, the applicant must meet rigorous financial-need requirements. Loans are not expected to be paid back while the student is enrolled in college or in the first six months after graduation. Unlike federally unsubsidized Stafford loans, the federal government assumes the cost of loans’ interest for the period that the student is in college, keeping the debt burden off of students’ shoulders while they earn their degrees.
Schumer announced today that a bipartisan agreement in the Senate to block the rate hike could be announced in the next several days, which would see the lower rate extended by tweaking the formula for how premiums are paid by businesses for the federal pension insurance program. With a Senate deal in the works, Schumer is urging the rank and file membership of both chambers to support the bipartisan deal that comes out of the Senate.
The College Cost Reduction and Access Act of 2007 cut the fixed interest rates on newly subsidized Stafford loans for undergraduate students to 3.4% over a set period of time; 6.0% in 2008-09, 5.6% in 2009-10, 4.5% in 2010-11 and 3.4% in 2011-12. However, the interest rates on any new subsidized Stafford loans will double to 6.8 percent on July 1, 2012 unless Congress takes action. The rate increase does not apply to loans that are currently in repayment or that have already been disbursed, but rather new loans that will be disbursed after July 1, 2012. In other words, students still attending school after July 1st 2012 that use federally-subsidized Stafford loans will pay higher rates on the new loans, adding to their already stacking debt. Student who are just entering college and taking out federally subsidized Stafford loans would be hit the hardest, as all four years of their undergraduate degree would be pegged to the 6.8% rate.
According to the New York State Higher Education Services Corporation, the average student who receives four years of subsidized Stafford loans would end up paying up to $3,798 more over the course of a ten-year repayment term if the interest rate is allowed to double this July 1st from 3.4% to 6.8%. This number is obtained by comparing the total amount of interest that a student would pay under either interest rate scenario, assuming that student had taken out the maximum amount of Stafford subsidized loans for four years of college and repays the loans over a 10-year period. Freshman are eligible for loans up to $3,500, sophomores are eligible for up to $4,500, and juniors and seniors may receive loans up to $5,500 for each of the last two years of college.
Over a quarter of a million undergraduate students in New York City, Long Island, and the Hudson Valley receive federally-subsidized Stafford loans. In New York City, there are 168,636 students with federally-subsidized Stafford loans; On Long Island, there are 60,133 students with federally-subsidized Stafford loans and in the Hudson Valley, there are 27,048 students with federally-subsidized Stafford loans.