Nearly seven and a half million college students nationwide may see interest rates on their student loans double if Congress does not take action to maintain current rates, President Barack Obama said during a conference call with student journalists on Tuesday.
Obama said he believes keeping college affordable is a national economic concern.
“I’ve always believed that we should be doing everything we can to help put higher education within reach for every single American student,” he said. “In America, higher education can’t be a luxury.”
The interest rate for federally subsidized Stafford loans currently sits at 3.4 percent, thanks to a provision passed by Congress in 2007. However, if Congress does not extend the current low rate, it will spike to 6.8 percent on July 1.
Students who take out Stafford loans do not pay interest on their loan while in college and then pay below-market rates after graduation. Although Harvard financial aid packages do not include loans, a small number of students at the College do take out Stafford loans to complement any monies that they receive, Director of Financial Aid Sally C. Donahue said.
Harvard Kennedy School Professor Joshua S. Goodman ’00 predicted that the 6.8 percent interest rate would increase the average student’s debt after graduation to $26,000. However, Goodman also said that the source of the funds for these subdsidized loans must be taken into account. Maintaining lower interest rates could take funds away from programs that assist lower-income students and, with the exception of institutions that have generous financial aid programs, there are relatively few other options available to help these students pay for college.
“Harvard is unusual in that it has this remarkable set of resources so that for very low income students a Harvard education is relatively inexpensive,” Goodman said.
Kennedy School Professor Christopher N. Avery ’88 said that despite increased interest rates, families will opt to bear additional financial burdens because it is worthwhile for most people to attend college.
“If you don’t go to college especially in these job markets prospects are really bleak, much bleaker without a college degree than with one,” he said.
However, Obama said in difficult economic times, small increases in debt can feel like a great burden for many American families.
“The central issue here is that if these were normal economic times, you would expect people to pay market rates on these loans,” Goodman said. “But these are not normal times,” he said.
Goodman suggested that a potential alternative would be to have income level determine the interest rate that students would have to pay.
“So if you had a job we should expect you to pay a higher interest rate on this loan, if you didn’t we would forgive you and give you the lower one,” he said.
Alternatively, he said, Congress could gradually raise interest rates.
—Staff writer Elizabeth S. Auritt can be reached at email@example.com.