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US Congress approves extension of low student loan interest rates

The debate around the financing of student aid in the US has been front and centre in both the House of Representatives and the Congress at least since January. By March, it has acquired renewed urgency as government estimates put the student debt at around USD 1 trillion (more than EUR 826 billion) and growing, surpassing even credit card debt in the country (see ACA Newsletter – Education Europe, March 2012). The issue has been close to the heart for both political parties, especially in an election year, as the focus increasingly shifted towards the expiring provision guaranteeing a low 3.4% interest rate on subsidised Stafford loans given to students able to demonstrate financial need. The impact of a failure to reach political consensus would not have been negligible – during last year approximately seven and a half million undergraduate and almost two million graduate students took part in the scheme.

The original law fixing the rate was passed in 2007 when the previously higher rate was lowered to the current level which is set to expire on July 1. Despite widespread agreement on the need for an extension in an effort to appease key constituencies, the legislators on Capitol Hill could not seem to reach an agreement. The struggle has gotten so far that President Obama had to sign a one-week temporary measure to extend the programme until the approved legislation reached the White House. In a rare last minute show of bi-partisan cooperation, both the Democrat-controlled Senate and the Republican-led House of Representatives voted unusually swiftly to pass the measure as part of a major bill on transportation and avoid a major embarrassment for both parties.

The extension prevented the rates from doubling to 6.8% and is valid for one year. However, it no longer includes graduate students who from now on can only apply for unsubsidised loans. The new legislation also imposes a limit on the number of years students can take to graduate before interest is charged. Under the previous agreement, this was delayed until after graduation but under the new rules, the maximum is set to six years. This is important as the qualifying condition for the loan is to be “enrolled at least half-time at an eligible school in a program leading to a degree or certificate”, which allowed many older students to study part-time while they work.

Although the extension is certainly good news for many US students and their families, it is still a patch-work solution that allows a student aid system in a dire need of reform to run for just a little longer. It will be interesting to observe what will happen following the November presidential election. Regardless of who wins, it is highly unlikely that a comprehensive overhaul of the system will happen before we will be discussing the Stafford loans once again in July 2013.

US Congress Federal Student Aid Office The White House