Officials who work with college students in Arkansas who depend on subsidized Stafford loans said they hope the doubling of the loans’ interest rate last Monday is a temporary setback that Congress will remedy before it affects students who sign loan papers for the forthcoming academic year.
Otherwise, it will increase students’ debt load later on and could elevate default rates and hurt college recruitment, they said last week.
Members of Congress failed to reach an agreement before their Fourth of July holiday on extending the Stafford program’s 3.4 percent rate or setting a new formula, so it automatically doubled to 6.8 percent.
Lawmakers are expected to take the matter back upon Wednesday when they return from break, said Amy Neathery, student services coordinator at Arkansas Student Loan Authority.
“We think Congress will get this inflated rate back to something comparable to 3.4 percent,” Neathery said. “Arkansas has one of the highest default rates in the nation.”
The authority’s director, Tony Williams, shares his colleague’s optimism, saying lawmakers didn’t disagree on whether to keep the rate low but on how to do it.
“We’re seeing there’s a general consensus in Congress,” Williams said. “The difference is over the interest rate structure that should be used going forward.”
The debate concerns whether the rate should be fixed, variable with the market, or variable with a maximum cap, he said.
Points of view also differ on how much the higher rate could cost students over the life of a loan, Williams noted.
According to a report released in June by Democrats on Congress’ Joint Economic Committee, the average student borrower would pay an extra $2,600 over a standard 10-year repayment period if the rate remains at 6.8 percent, The Chronicle of Higher Education reported June 20.
Williams said he wasn’t sure how the committee had arrived at that figure.His estimate was more in line with several interpretations of what President Barack Obama has said.
“I can give you a typical example,” Williams said. A student who borrowed $5,000 for this fall at 6.8 percent would pay $1,904 in interest over 10 years when repaying the loan, compared with $905 if the rate reverts back to 3.4 percent.
“So there’s a difference of $999,” he said.
In all, Arkansas had $246.6 million in subsidized Stafford loans in 2013-14, according to information released in June by U.S. Sen. Mark Pryor’s office. The state had 68,243 borrowers and 78,650 loans.
Administrators at two of Arkansas’ largest universities said that, despite some talk nationally that the interest rate difference is not a big deal, it is something that could significantly affect the student borrowers and the economy within roughly the next five years.
“We have a lot of low-income students,” said Terry Finney, director of financial aid and scholarships at Arkansas State University in Jonesboro, where he estimates 50 percent to 60 percent of students rely on subsidized Stafford loans. “We serve a lot of the Delta over here.”
At the Un iversity of Arkansas at Fayetteville, where recruitment ofhigh-achieving students from throughout the state and beyond has been the mantra for about the past 15 years, dependence on Stafford loans is still significant.
“About 24 percent of outof-state students are going to be on Stafford, and over 30 percent of our in-state students,” said Suzanne Mc-Cray, UA’s vice provost for enrollment.
Finney said that whichever interest rate prevails, it will affect only those loans originated after last Monday, which is also the first day of Arkansas’ fiscal year, and most schools won’t credit a loan taken out after that to a student’s account until the fall semester begins in August.
If Congress lowers the rate when it returns from holiday, he expects it will make the rate retroactive to last Monday.
The issue before Congress is complicated, involving many factors, he said.
“They’re trying to save the Pell grant,” Finney said, adding that like the Stafford loan, the grant also is relied upon by students of high need. “They’re trying to make the Pell grant as viable as they can.
“I want both, I guess,” he said of those particular grant and loan options for students. “I hate to see the interest rates go up, particularly our subsidized loans - those are the neediest students. You want to see themsucceed.”
McCray sounded more concerned than the loan authority officials on whether the Stafford loan rate increase will be reversed.
“I’m just not sure thereis going to be a groundswell or pushback, to make it change,” McCray said, adding that the effects on a student won’t begin until loan repayment starts. “This is an issue that affects someone four years and six months out.”
However, loans are generally among the concerns McCray hears from parents during recruiting efforts, particularly those with low incomes or whose students would be first-generation college students. They are weighing whether college is a good choice for their child.
“Borrowing in general can be off-putting for families,” she said. “It’s a leap of faith when you borrow for education - that this will make my kid’s life better, or my life better.”
The Arkansas officials noted that interest rates have been at 6.8 percent before, particularly a couple of years before the College Cost Reduction and Access Act of 2007 began gradually lowering them to 3.4 percent by the 2011-12 school year.
In the national debate, some have expressed concern that letting the interest rates rise again will mean graduates will delay buying homes and cars, further hindering the economic recovery.
Northwest Arkansas, Pages 11 on 07/07/2013