Caveat Emptor or Buyer Beware 17: Student Loan Interest Rates to Double

Saturdays we share a tip or cautions to facilitate getting scholarships or avoiding problems

Danielle graduated from a fine liberal arts college with a BA in Art History. She added to her academic work by volunteering as a docent at the small museum of art in her community for three years. Even so, her liberal arts degree and volunteer experience failed to land her a job upon graduation. Unfortunately, she maintained her ability to volunteer so much by financing her degree with $200,000 worth of student loans. O*Net states that the average museum technician or conservator earns $38,220 annually. A total of 12,000 people are employed in the field. 64% have a master’s degree. So, Danielle incurred a $200,000 student debt to prepare for a $38,220 a year job.

Congress Inaction Doubles Interest Rates

Last year, as part of an education reform package, Congress doubled interest rates on loans to attend graduate school. At the time, they also planned to double undergraduate rates. Social media across the country screamed “Don’t double my rate”. Congress responded by delaying the undergraduate rate increase to July 1, 2013. The increase would only apply to new subsidized loans taken out after July 1.

Last Friday, June 28, Congress recessed for the July 4 break. Proposals in both the House and Senate failed to garner support. One faction wanted to link student loans to treasury rates plus 9.3% another plus 3.4% As a result, Congress recessed without delaying the rate increases allowing millions of future student loans to increase from 3.4 %to 6.8%.

Possible Solutions to Prevent the Rate Hike

Congress may pursue a few options when they return by voting to:

• Delay rate increases for another year
• Adopt one of the proposals presented in the Senate
• Conference to reconcile Senate and House versions
• Deal with student loans as part of the comprehensive rewrite of the law governing all colleges and universities in September
• Do nothing and allow interest rates to double

Congress must identify how to pay for the options that forestall rate increases.

Tuesday we describe Nationally Coveted…as a source of financial aid 

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