Some of Vermont’s highest-ranking politicians are sounding alarm bells over the possibility that interest rates on some student loans will double July 1.
If Congress fails to pass legislation by Monday, interest rates for federally subsidized Stafford loans will increase from 3.4 percent to 6.8 percent. Neither Republicans nor Democrats are pushing for that outcome, but, with only days remaining, they have yet to agree on what the rates should be and how they should be set in the future.
Rep. Peter Welch, D-Vt., expressed exasperation with his fellow Capitol Hill lawmakers at a news conference Tuesday, a few hours before he boarded a flight back to Washington, D.C.
“Congress is not getting the job done. This is real for real Vermont kids and Congress is just dilly-dallying, and it’s quite alarming,” Welch told reporters.
According to Welch, the rate jump would affect about 28,000 Vermont students who, on average, would have to pay another $1,000 over the lifetime of the loan. It wouldn’t affect students who have already taken out loans because they come with a locked-in interest rate.
There are two types of Stafford loans — subsidized and unsubsidized — and only the subsidized ones would be affected if Congress fails to act. The government pays the 3.4 percent interest rate on subsidized loans, which are given to students who can’t afford the cost of college, as long as the student is in school. Students with unsubsidized loans already pay a 6.8 percent interest rate.
Subsidized Stafford loans used to come with a 6.8 percent interest rate, but in 2007 Congress passed a law to cut that rate in half over the course of four years. That law was scheduled to sunset last year, and just two days before the deadline, Congress averted the doubling of rates by preserving the 3.4 percent rate for another year.
College graduates in Vermont are shouldering an average of $28,860 in debt, and they have the highest ratio of debt to income — 82 percent.
Now Congress is on the edge of the same precipice. Welch blames the Republican leadership in the House for the rate hike, which he said is “really pretty outrageous” and reflective of “an upside-down set of priorities.”
Welch said the cost of keeping the interest rate at 3.4 percent — roughly $8 billion, according to Welch — wouldn’t be a heavy lift for taxpayers. (He suggested paying for it by eliminating tax breaks for large oil companies.)
While $1,000 may not sound like a back-breaking increase, Vermont students, already saddled with thousands of dollars of debt, can’t handle much more, according to Welch.
“This is like an albatross tied around the neck of these kids getting out of school,” he said.
The impact
Varun Gopinath, who recently earned his undergraduate degree from the University of Vermont, is one of those debt-burdened graduates.
Gopinath crammed all the necessary credits into three years, graduating early to avoid falling further into debt. He received the maximum subsidized Stafford loan — $3,500 for the first year, $4,500 for the second, and $5,500 for the third. He took out additional loans and his parents also borrowed tens of thousands of dollars, he said.
“You really don’t have that full education experience when you are burdened with debt. The idea of debt is always a chip on your shoulder.” ~Varun Gopinath
Gopinath, who has whittled his debt down to $15,000, said the size of his loans has been a source of stress. “You really don’t have that full education experience when you are burdened with debt. The idea of debt is always a chip on your shoulder.”
He got into graduate school at UVM, and he could have secured a second Stafford loan to help finance it, but he decided he couldn’t stomach $50,000 more in loans. So, instead of getting his master’s in community development and applied economics, Gopinath is reluctantly returning home to Georgia, where he says he’ll complete a different program at a fraction of the cost. “I would have liked to stay in Vermont,” Gopinath said.
Gopinath said he thinks doubling Stafford loan rates could deter more students from going to college. “Those are huge increases for a person that’s not making any income. As a student, you’re looking at costs benefits. You are looking at the time you are putting into college as a future gain.”
Gov. Peter Shumlin chimed in today, too, prodding Congress to do its part.
“We are doing our part, and Vermont’s congressional delegation has also worked to prevent this steep jump in federal loan rates. Now it is time for Congress to act,” Shumlin said in a statement. “For the Vermonters and millions of Americans who would be impacted by a rate increase, this is a very real concern that will hit their pocketbooks and dash their opportunities.”
Sen. Bernie Sanders, who spoke out last week against the potential doubling of the rates, pointed out that Vermont is in an especially vulnerable position. Sanders cited data from the Joint Economic Committee that shows Vermont has the seventh-highest average student loan debt. College graduates in Vermont are shouldering an average of $28,860 in debt, and they have the highest ratio of debt to income — 82 percent.
Different factions on Capitol Hill — President Barack Obama, House Republicans, Senate Democrats, Senate Republicans — have each devised their own plans for getting out of the fix. The Washington Post’s Wonk Blog has a thorough rundown on all of the proposals in circulation here.
The House passed legislation several weeks ago — Welch described it as token vote engineered by Republicans to make it appear that they did something about the problem — that would tie the interest rate for all loans to the 10-year Treasury rate, plus an additional 3 percent. The rate would be capped at 8.5 percent.
The Senate has not been receptive — “It’s languishing in the Senate, and I hope it dies there,” Welch said.
The House Republicans’ plan, Welch said, would be “brutal” for students for two reasons: the Treasury rate is forecast to increase, and students would no longer have a locked-in rates, making them subject to market fluctuations.
Welch says he would prefer preserving the 3.4 percent rate for at least another two years.
