Student Loan Rate Doubles
The interest rate for new subsidizedstudent loans through the federal Direct Loan Program doubled to 6.8 percent effective July 1. A Democratic proposal to extend the previous 3.4 percent rate for a year failed a second time on Wednesday in the Senate. Unless a compromise is reached, the increase will hold. It is a discouraging development for students planning to take out direct subsidized loans.
To gauge the impact at NMU, last year’s data shows more than 4,700 students received about $17.6 million, which equates to an average of about $3,700 per borrower.
“The new, increased rate would only affect direct subsidized loans going forward, not those previously obtained,” said Mike Rotundo (Financial Aid). “And it’s the rate that will be implemented when the loan hits the repayment stage. Subsidized loans will remain interest-free while students are enrolled and through deferment periods; the 6.8 percent would take effect when they start making payments. But there’s no doubt that it will be more challenging for students. It’s disappointing that Congress hasn’t been able to come up with a solution. It’s still a moving target, though, so we’re keeping an eye on it.”
Many colleges and universities nationwide have countered the steady decline in government support for higher education by raising tuition, which in turn increases the reliance on student loans. While the doubled interest rate makes subsidized loans less attractive, Rotundo said they are still a much better deal for students than private bank loans.