The "fight" over federal student loan interest rates rages on in Washington D.C. Both Republicans and Democrats - including President Barack Obama and his imminent


Local Take: Raising Interest Rates on Federal Stafford Loans at UW Could Come at a Cost

The "fight" over federal student loan interest rates rages on in Washington D.C. Both Republicans and Democrats - including President Barack Obama and his imminent Republican challenger in November, Mitt Romney - seem to agree that keeping the interest rate from doubling on federally subsidized Stafford loans come July 1 is of the utmost importance. They just can't seem agree on how to do it (shocker!). And this politically-motivated grappling and maneuvering has the potential to impact a large number of local college students.

As you've surely heard by now, the interest rate on Stafford loans will go from 3.4 percent to 6.8 percent this summer without action from lawmakers in D.C. Both President Obama and Republican presidential hopeful Mitt Romney have turned this situation into a campaign bullet point, each stumping for its importance, and each offering a different viewpoint on how to achieve it.

The latest in this political tug-of-war comes today, with the White House threatening to veto a Republican-crafted bill currently making its way through the House that would keep Stafford loan interest rates at 3.4 percent by axing a preventive care program created under Obama's health care law.

From an Associated Press story on this latest development:

"This is a politically motivated proposal and not the serious response that the problem facing America's college students deserves," said the White House message. It said Obama's advisers would urge him to veto the bill.

Republicans have called the prevention program a "slush fund," saying the money is not controlled tightly enough.

"The president is so desperate to fake a fight that he's willing to veto a bill to help students over a slush fund that he advocated cutting in his own budget. It's a simple as this: Republicans are acting to help college students and the president is now getting in the way," said Michael Steel, spokesman for House Speaker John Boehner, R-Ohio.

Political grandstanding aside, student loan debt is already a major issue for today's college students, and only promises to become more of an issue in the future - whether Stafford loan interest rates double or not. The national average for student loan debt is around $26,000, and that number will only go up as college continues to get more expensive and university budgets continue to get slashed, among other factors.

At the University of Washington, Kay Lewis, the school's director of financial aid, says that the average student loan debt is below the national average - at $20,316 (figures that encompass all student loans, not just federal Stafford loans) - but that the loans still "play a critical role in helping low and middle income students fund their education."

"For 2011-12--about 42 percent of our undergraduates borrow [from federal Stafford loans]. The other way to look at it is that for our undergraduates who received their degree in 2010-11, 50 percent of the graduating class had loan debt at graduation," Lewis says.

Lewis says the impact of a potential Stafford loan interest rate hike is difficult to currently predict, as the repercussions won't be felt for several years - when current borrowers enter repayment. More than anything, Lewis says it may just act as another deterrent to potential students trying to figure out how they're going to pay for an education.

"I think this interest rate increase is one of many recent changes that might make students think they can't afford to borrow for school--like the loss of the subsidized loan program for graduate students, the loss of the subsidized interest during grace periods, slightly higher fees, and the cuts to the Pell Grant," says Lewis. "This erosion of federal benefits around the student loan program could make some students hesitant to go to college or to finish. It certainly means a more expensive loan for students."

Currently, Lewis says the UW focuses its efforts toward educating potential borrowers about repayment options, highlighting Income Based Repayment options, and urging students not to borrow more than they need - tactics that no doubt help the school maintain a fairly low 2.3 percent default rate. Lewis says the school has also recently started sending letters to delinquent borrowers on their student loans to make sure they understand their options.

As to what the school would like to see happen in D.C., Lewis (not surprisingly) says the issue at hand is larger than the one being bickered about by politicians.

"The one year delay in doubling the interest rates on the subsidized Stafford Loan would be a good first step in helping our student borrowers. However, we'd really like to see a long term fix that balances the cost to the federal government and to the student," says Lewis. "One idea that has been mentioned before is to keep the student loan interest rates around other interest rates--variable, but up to a maximum cap, such as the 6.8 percent. That way, students could take advantage of lower interest rates in the markets now and yet have the security to know that rates won't rise above a maximum cap."

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