LYNN — College education became considerably more expensive on Monday for students going to school on government-backed Stafford loans.
Provisions of federal legislation took effect Monday that doubles the interest rate on the subsidized loans from 3.4 percent to 6.8 percent for millions of students, after Congress failed to reach a compromise to maintain the lower rate before July 1.
Under the new law, the interest rate can reset every year of the loan, similar to adjustable-rate mortgages.
U.S. Rep. John Tierney and fellow House Democrats are pushing for Congress to extend the 3.4 percent rate. He blamed his Republican colleagues on Monday for placing a financial burden on students.
“We have to get past this notion that we’re to operate like a for-profit bank,” said Tierney. “(Republicans) want to make a profit on these loans.”
Tierney said the federal government made a $51 billion profit on student loans last year, money put toward paying down the federal deficit. He suggested the government tie student loan interest rates to 90-day Treasury notes, which he said would provide enough interest to cover administrative costs and a default factor.
“The interest rates will go up over time but we could cap them,” Tierney said.
Tierney said he’s optimistic the Stafford loan rate will be lowered.
“I think at some point we’ll find a way to cover the shortfalls we’ve been covering with the loans,” he said. “But it begs the question, what about all the other loans?”
Tierney said there are other federally subsidized student loans, including Perkins, where the interest rate is 6 percent or higher.
“I think if we resolve the 3.4 rate on Staffords, then I think we’ll have time to look at the reauthorization of the Higher Education Act and talk about all the other loans,” he said.
Susan Sullivan, director of financial aid and student financial services for North Shore Community College, said she doesn’t anticipate much of a protest from students locally if the higher interest rate is here to stay.
“(The rate) has been this high before,” she said. “Seven or eight years ago it was 6.8 percent but then came down again ”¦ but there are a whole lot of people like me paying off loans at the 6.8 percent (rate).”
Sullivan said the increase isn’t an immediate concern because it won’t impact students until they begin to pay their loans back.
The higher Stafford loan interest rate will apply to loans issued after July 1.
Sullivan said it’s not clear whether the higher interest rate will factor into students’ college selection process, or if students will even notice.
“The government is the only game in town,” she said.
Years ago students could go to banks for student loans, which allowed for some competitive rates but now the government is virtually the only college lender, she said.
Scott James, vice president of Enrollment Management and Student Life at Salem State University, said that fact might lead to more pressure on colleges and universities to offer other grants or loan programs, particularly for low-income students.
With the high rate on Stafford loans, James said some students might think twice about heading to a more expensive private college.
“They may choose a public education, which may help us,” he said.
But James said he’s also concerned of the potential for lower-income, first-generation minority students being disproportionately affected.
“You could see a growth at the community college level like we did during the economic downturn,” he said.
Chris Stevens can be reached at [email protected]