Editor’s note: The video footage was shot by Greg Guma.
Unless Congress acts before the end of June the interest rates on federally subsidized education loans for thousands of college students will double, warns U.S. Rep. Peter Welch.
The current interest rate for Stafford loans, an assistance program named for Vermont’s late Senator Robert Stafford in honor of his work on higher education, is 3.4 percent. Welch calls the program “a legacy for every Vermonter and every American to be proud of.”
But the rate will double to 6.8 percent in less than three months unless legislation extends the lower rate, he said at a Monday press conference.
In 2006 Congress established the 3.4 percent rate for federally subsidized Stafford loans – but only for six years. Now the time is up, and unless the increase is blocked students and their families will face as much as $11,000 more for a 20-year Stafford loan, Welch said.
Meeting with reporters on his way to a flight at Burlington International Airport, the congressman called the situation “ground zero for the middle class” and asked, “Are our children of middle-class parent going to have a shot at an education they can afford, or are they going to graduate with a financial albatross around their neck?”
His immediate goal is to prevent the interest rate from doubling, calling the possibility “a hammer blow to aspirations of these kids.” But Welch added that the country faces a decision; whether “to renew our commitment to giving middle-class students — and low-income students – an opportunity to get into the middle class, or are we going to go with trickle-down economics?”
He nevertheless denied that the problem is partisan politics. “I don’t believe this is a partisan issue,” Welch insisted when questioned. “It’s caught up in the toxic budget politics. But we all have kids.”
College tuition rose 9 percent last year, Welch reported. He also mentioned a tough job market for graduates and entry level salaries that aren’t enough “to pay the debt service.” To provide concrete examples of the need to extend the low interest rate he introduced two Vermont college students and a parent with children who are expected to seek higher education some day.
College students Cody Paiva and Patrick Magnus called the prospect of increased interest rates frightening. “It scares me to think of all the student loans I have now and to stack other ones on top of that later on,” said Paiva, a UVM microbiology student who is paying his own way.
“I don’t think it’s fair for students who are already struggling financially to take out more money to pay back more interest than they need to, just to get a higher education,” he added.
For Ben Truman preparing two sons for college is an exciting prospect. “But then my wife and I look at each other and think: now we’ve got to pay for it.” The Trumans don’t want to saddle their kids with debt, but just refinanced a home. He called doubling the interest rate for a college loan “unfathomable,” especially since it is “almost twice as much as we are paying on our home loan.”
Students could also face a larger burden under the Republican budget plan developed by Rep. Paul Ryan. One of its primary targets is the Department of Education, specifically Pell Grants, an Obama administration job-training initiative and Stafford loans. The three programs help lower income students attend college.
Democrats say the GOP is targeting education for cuts and calls it a fairness issue. Republicans claim they simply want to control government spending and rising tuition rates. In a recent budget hearing Education Secretary Arne Duncan predicted that passage of the Republicans’ budget would “propel the educational success of this country backwards for years to come.”
The Ryan budget also calls for the interest rate on federally subsidized Stafford Loans to double. Under that plan the government would also no longer subsidize the interest low-income students accrue while in school.
If the Stafford loan rate increase takes effect the cost of borrowing money over a 10-year period will go from 18 percent to 38 percent with interest costs.
Welch said the current congressional deadline is a “solvable problem.” But he identified troubling long-term trends. The average college loan for a Vermont student has reached $30,000, and “we have the sixth largest indebtedness among students in the country.” Nationally, college loan debt has reach $860 billion, more than credit card debt and auto loans.
As a result he claims that a growing number of his congressional colleagues are asking, “If the government can borrow at 2 percent, should Stafford loans be charged at 6.8 percent? What’s the justification? Keep in mind that this is a lending program.”
