Foothill College students with federal loans can breathe a bit easier after the U.S. Senate passed legislation to lower interest rates July 24.
The action affects borrowers who have taken out or will take out a new federal student loan after July 1, according to a Senate statement. The bill goes to the House of Representatives for a vote in August.
Students with Stafford loans, usually from lower- and middle-class families, had faced a doubling of interest rates from the previous 3.4 percent to 6.8 percent, effective July 1, when the U.S. House of Representatives failed to take action.
The Senate bill, the Bipartisan Student Loan Certainty Act, garnered support from Republicans and Democrats.
“This bipartisan compromise puts in place a sustainable, market-based solution that ensures access and affordability for students seeking to improve their lives through higher education,” said Richard Burr (R-NC), who introduced the bill with senators Joe Manchin (D-WV), Angus King (I-ME), Tom Coburn (R-OK), Tom Carper (D-DE), Tom Harkin (D-IA), Lamar Alexander (R-TN) and Dick Durbin (D-IL).
“The act essentially ties interest rates to fluctuations in the market, allowing students to take advantage of historically low rates while ensuring that taxpayers will not have to foot the bill for arbitrary rates set by Congress,” Coburn said.
The new legislation lowers interest rates for undergraduate students – accounting for two-thirds of all loans – to 3.86 percent. It includes a cap, with undergrads paying up to but no more than 8.25 percent, no matter how the market performs. The loans are set to the U.S. Treasury’s 10-year borrowing rate.
“My initial read is that is it good for current community college students, who will likely be moving on prior to the readjustment in 2015,” said Kevin Harral, director of financial aid at Foothill College. “The big deal about it is the speed of readjusting that could happen after 2015. As a student advocate, it is hard to say it’s a good deal if it rapidly increases up to the cap within a year or two after 2015, unless the cap is appropriately set. However, these federal programs must be funded and, yes, it is partially off the interest collected from students.”
Still, Harral agreed that the act is a better solution than the previous stop-gap measures – or no action at all.
“Loans are a necessary part of paying for education for many of Foothill College’s upper-, middle- and low-income families,” he said, “and I would much rather there be a reasonable increase (or annual fluctuation) in rates, in step with our overall economy … than the loan program be eliminated or dismantled.”
Harral added that something needs to be done to stabilize the program and prevent eleventh-hour scrambling.
“Even if this deal sunsets in some future year, the topic seems to be rarely discussed until it is about to impact students and a larger solution needs to be compromised on,” he said. “I would love to see a more thorough discussion on the rates, but this deal is something – and better than what happened on July 1.”