Senate stalls on reducing student loan interest rate, students in limbo

Louis Scott, Director of Georgia State University's Office of Financial Aid, in his office on campus, Wednesday, July 10, 2013.

WASHINGTON / ATLANTA -- Senate Democrats on Wednesday failed to restore lower interest rates on subsidized student loans, again coming up short and perhaps signaling that undergraduates might really face rates twice as high as the ones they enjoyed last year.

The proposal from Democratic leaders would have left interest rates on subsidized Stafford loans at 3.4 percent for another year while lawmakers took up a comprehensive overhaul. The one-year stopgap measure failed to overcome a procedural hurdle as Republicans - and a few Democrats - urged colleagues to consider a plan now that would link interest rates to the financial markets and reduce Congress' role in setting students' borrowing rates.

The competing proposals failed and lawmakers said students would face higher costs to repay their loans after graduation.

"Today our nation's students once again wait in vain for relief," said Sen. Tom Udall, D-N.M. "They expected more of us and I share their disappointment."

"Today, we failed. And our nation's students pay the cost of that failure," he added after the vote.

The failure to win a one-year approval - combined with little interest in such a deal in the Republican-led House - meant students would be borrowing money for fall courses at a rate leaders in both parties called unacceptable.

The rate increase does not affect many students right away; loan documents are generally signed just before students return to campus, and few students returned to school over the July Fourth holiday. Existing loans were not affected, either.

However, absent congressional action in the coming weeks, the increase could spell an extra $2,600 for an average student returning to campus this fall, according to Congress' Joint Economic Committee.

During last year's presidential campaign, lawmakers from both parties voted to keep interest rates on subsidized Stafford loans at 3.4 percent. Yet this year, without a presidential election looming, the issue seemed to fizzle and the July 1 deadline passed without action.

The White House and most Democratic senators favored keeping the rates at 3.4 percent for now and including a broad overhaul of federal student loans in the Higher Education Act rewrite lawmakers expect to take up this fall.

"It's not just what rate. It's how do we keep college costs in check?" said Sen. Jack Reed, a Rhode Island Democrat who pushed for the extension measures. "It will allow us to work through a very complicated set of issues."

The Republican-led House has already passed legislation that links interest rates to financial markets. Republicans in the House were opposed to a one-year extension, meaning Wednesday's Senate vote might not have meant much relief for students even if it had passed.

Efforts to find a compromise went nowhere as well. Democratic Sen. Joe Manchin of West Virginia worked with the top Republican on the education panel, Sen. Lamar Alexander of Tennessee, to write a bipartisan bill that closely follows the GOP bill. That bill incorporated an idea that originally was included in President Barack Obama's budget to link interest rates to the financial markets before he distanced himself from it.

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Both of Georgia's Senators voted against the one-year extension.

Millions of college students and their parents are worried, in sort of a financial limbo.

"A lot of people won't be able to afford the 6.8 percent," said Francesca Deny, a third-year Georgia State University student who said Wednesday that her own Stafford loan has helped her pay for her pre-nursing courses.

At GSU, students in financial need are deciding now whether they'll be able to afford to take out one of the subsidized loans at the higher interest rate for the upcoming school year.

It's a gamble.

They know Congress might reduce the interest rate later, retroactively. Or might keep the rate high. Or might even decide to make the rates adjustable every year, which means the rate could eventually end up even higher than 6.8 percent.

"Of course, the interest rates are going to increase and increase and increase, so I feel like it'll be a struggle for students," said another third-year GSU student, Jamiya Brinson.

The Stafford loan has been an important component in financing her studies toward becoming a physical therapist. "It'll definitely be a little tougher for us" paying back the loan at the higher rate after she graduates, she said.

The earlier, annual Stafford loans she received will remain at 3.4 percent when she pays them back after graduation, but, as of now, the subsequent annual Stafford loans she would receive will be at 6.8 percent.

The director of financial aid at Georgia State, Louis Scott, said Wednesday that this past school year about 14,000 GSU students received the subsidized student loan at 3.4 percent, so whatever Congress decides "really impacts Georgia State."

The new, higher interest rate that just took effect for the next school year, he said, could price some students out of the loan, and out of college.

"It will have a huge impact as far as the students deciding whether they want to take out a student loan," Scott said. "We're just hoping that we get a resolution to this that will be in the best interest of the students."

At Georgia State, the next term begins next month, and students will have to be able to write a check on August 17th, somehow, for their tuition.

"Students have already begun applying for the student loans here at Georgia State University, for a subsidized loan," Scott said. "But there's still time for the federal government to reach an agreement on it."

Students are hoping Congress just decides something before then, so they'll know whether they'll be able to afford to take out a Stafford loan for the next school year.

"Help us," Brinson said, as if speaking to Congress.

"Because I'm trying to stay in school," Deny said.

Congress will try to reach an agreement before the August recess.

Reported by Philip Elliott in Washington, Jon Shirek in Atlanta.

On Twitter:

@Philip_Elliott

@JonShirek

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