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Student loan rates double without Congress' action

Published: Tuesday, June 30 2015 8:35 p.m. MDT

FILE - In this May 8, 2012, file photo political science major Clarise McCants of Philadelphia is flanked by Sen. Sherrod Brown, D-Ohio, left, and Sen. Jack Reed, D-R.I., right, as she talks about student loans on Capitol Hill. The student loan bill underscored the current partisan positioning in Congress, that's producing little that will become law. If want to keep federally subsidized loan interest rates from doubling on July 1 for millions of college students, and you're a House Democrat, you had to vote for a Republican bill, financed by obliterating a preventive health program created in the Democrat-cherished health care overhaul; if you were a Senate Republican, you had to support a Democratic bill, financed by boosting payroll taxes on upscale owners of some privately owned companies, a nonstarter for most Republicans. (AP Photo/J. Scott Applewhite, File) (Associated Press) FILE - In this May 8, 2012, file photo political science major Clarise McCants of Philadelphia is flanked by Sen. Sherrod Brown, D-Ohio, left, and Sen. Jack Reed, D-R.I., right, as she talks about student loans on Capitol Hill. The student loan bill underscored the current partisan positioning in Congress, that's producing little that will become law. If want to keep federally subsidized loan interest rates from doubling on July 1 for millions of college students, and you're a House Democrat, you had to vote for a Republican bill, financed by obliterating a preventive health program created in the Democrat-cherished health care overhaul; if you were a Senate Republican, you had to support a Democratic bill, financed by boosting payroll taxes on upscale owners of some privately owned companies, a nonstarter for most Republicans. (AP Photo/J. Scott Applewhite, File) (Associated Press)

WASHINGTON — College students taking out new loans for the fall term will see interest rates twice what they were in the spring — unless Congress fulfills its pledge to restore lower rates when it returns after the July 4 holiday.

Subsidized Stafford loans, which account for roughly a quarter of all direct federal borrowing, went from 3.4 percent interest to 6.8 percent interest on Monday. Congress' Joint Economic Committee estimated the cost passed to students would be about $2,600.

"In the grand scheme of all the loans that I already have, I suppose it's not out of control," said Angie Platt, a 20-year-old University of Iowa student who expects to graduate with at least $60,000 in debt.

"It's just another thing to add on. It doesn't help me; that's for sure," the Lakeville, Minn., native added.

Efforts to keep interest rates from doubling on new Stafford loans fell apart last week amid partisan wrangling in the Senate. Democratic senators and the White House both predicted that a deal would be reached in Congress to bring the rates down again before students return to campus.

FILE - In this March 13, 2012, file photo Sen. Jack Reed, D-R.I., joins students at a Capitol Hill news conference to announce the collection of over 130,000 letters to Congress to prevent student loan interest rates from doubling this July. The Senate planned a Tuesday May 8, 2012 roll call on a plan, which would extend today's 3.4 percent interest rates on subsidized Stafford loans for another year. (Manuel Balce Ceneta, File, Associated Press) FILE - In this March 13, 2012, file photo Sen. Jack Reed, D-R.I., joins students at a Capitol Hill news conference to announce the collection of over 130,000 letters to Congress to prevent student loan interest rates from doubling this July. The Senate planned a Tuesday May 8, 2012 roll call on a plan, which would extend today's 3.4 percent interest rates on subsidized Stafford loans for another year. (Manuel Balce Ceneta, File, Associated Press)

But if an agreement remains elusive, students could find themselves saddled with higher interest rates this year than last.

"It's kind of surprising; that's a big jump," said Rebecca Ehlers, an Iowa State University senior majoring in math.

A $1,000 subsidized Stafford loan is part of her financial aid package and she said she's reconsidering how she pays for school.

"I may work more or ask my parents for money rather than going through all that," said Ehlers, 21.

She — and millions of others who use federal student loans to pay for their education — has some time before she has to make that decision. But not much.

"The only silver lining is that relatively few borrowers take out student loans in July and early August. You really can't take out student loans more than 10 days before the term starts," said Terry Hartle, a top official with colleges' lobbying operation at the American Council on Education.

From left, Sen. Tom Harkin, D-Iowa, Sen. Sherrod Brown, D-Ohio, and Sen. Jack Reed, D-R.I., are backed up by students during a news conference on Capitol Hill in Washington, Tuesday, May 8, 2012, as the Senate moved toward a showdown on a Democratic proposal to keep federally subsidized loan interest rates from doubling for millions of college students.   (J. Scott Applewhite, Associated Press) From left, Sen. Tom Harkin, D-Iowa, Sen. Sherrod Brown, D-Ohio, and Sen. Jack Reed, D-R.I., are backed up by students during a news conference on Capitol Hill in Washington, Tuesday, May 8, 2012, as the Senate moved toward a showdown on a Democratic proposal to keep federally subsidized loan interest rates from doubling for millions of college students. (J. Scott Applewhite, Associated Press)

But that is little consolation for students looking at unexpected costs waiting for them on graduation day if Congress doesn't take action before it breaks again for the month of August.

"I'm upset by it," said Kolton Gustafson, a George Washington University political science major heading into his senior year. "I wish there was a larger reaction to it."

"Many students are saying and thinking, 'I'll pay it later,'" the Grand Junction, Colo., native added. "That's why you don't see more people fighting back."

Students only borrow money for one school year at a time. Subsidized Stafford loans taken before Monday are not affected by the rate hike, nor are federal PLUS, Perkins or unsubsidized Stafford loans slated for the coming year.

"We're telling members to advise students that interest rates are going up," said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

FILE - In this May 31, 2013, file photo, the audience responds to a question asked by President Barack Obama, joined by college students, in the Rose Garden of the White House in Washington, where he called on Congress to keep federally subsidized student loans rates from doubling on July 1. On June 6, 2013, the Senate is set to consider competing bills to keep student loan rates from doubling. (AP Photo/Susan Walsh) (Associated Press) FILE - In this May 31, 2013, file photo, the audience responds to a question asked by President Barack Obama, joined by college students, in the Rose Garden of the White House in Washington, where he called on Congress to keep federally subsidized student loans rates from doubling on July 1. On June 6, 2013, the Senate is set to consider competing bills to keep student loan rates from doubling. (AP Photo/Susan Walsh) (Associated Press)

Subsidized Stafford loans go to needier students and often are coupled with other types of lending.

He said he doesn't anticipate that the rate increase will prevent students from attending classes in the fall. The effects, he said, won't be felt until after students graduate, when they have to start paying back the loans.

"This doesn't decrease the dollars available to pay for college. It increases the cost of the loan," he said.

Both political parties tried to blame the other for the hike and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country.

Lawmakers knew for a full year the July 1 deadline was coming but were unable to strike a deal to dodge that increase. During last year's presidential race, both parties pledged to extend the 3.4 percent interest rates for another year to avoid angering young voters.

President Barack Obama greets students after he called on Congress to stop interest rates on student loans from doubling next month during a news conference in the East Room of the White House in Washington, Thursday, June 21, 2012.  (Susan Walsh, Associated Press) President Barack Obama greets students after he called on Congress to stop interest rates on student loans from doubling next month during a news conference in the East Room of the White House in Washington, Thursday, June 21, 2012. (Susan Walsh, Associated Press)

But the looming hike lacked sufficient urgency this year and Congress last week left town for the holiday without an agreement. Instead, the Democratic-led Senate pledged to revisit the issue as soon as July 10 and retroactively restore the rates for another year — into 2014, when a third of Senate seats and all House seats are up for election.

At the White House, a spokesman predicted a deal could be reached before students return to campus.

"We are confident they will get there and that the solution will include retroactive protection for students who borrow after July 1 so that their student loan rates don't double," Matt Lehrich said.

Even when lawmakers return, there's no guarantee there will be the votes to restore the lower rates.

"When we pass a deadline and there are not immediate effects, the sense of urgency that accompanies a deadline evaporates and that is what I'm afraid will happen here," Hartle said.

For months, the student loan issue was the subject of partisan sniping — sometimes within the same party.

Sen. Sherrod Brown, D-Ohio, left, and Sen. Jack Reed, D-R.I., center, confer on the way to a news conference on Capitol Hill in Washington, Tuesday, May 8, 2012, to discuss the Democratic proposal to keep federally subsidized loan interest rates from doubling for millions of college students. They are followed by Sen. Tom Harkin, D-Iowa.  (J. Scott Applewhite, Associated Press) Sen. Sherrod Brown, D-Ohio, left, and Sen. Jack Reed, D-R.I., center, confer on the way to a news conference on Capitol Hill in Washington, Tuesday, May 8, 2012, to discuss the Democratic proposal to keep federally subsidized loan interest rates from doubling for millions of college students. They are followed by Sen. Tom Harkin, D-Iowa. (J. Scott Applewhite, Associated Press)

Obama's budget proposal included a measure that would have linked student loan interest rates with the financial markets. Fellow Democrats called that unacceptable because there were no guarantees interest rates would not skyrocket if the economy improves.

The Republican-led House, meanwhile, co-opted the president's proposal and passed a bill in May that linked interest rates to the financial markets but with a cap on how high rates could climb.

The Democratic-led Senate, meanwhile, tried for a two-year extension that failed to overcome a procedural hurdle. A Republican measure, similarly, came up short.

Top White House officials told allies to find any deal that could win enough votes and avert the politically and fiscally costly doubling.

An attempt at a bipartisan agreement fizzled last week when the Democratic chairman of the Senate education panel, Sen. Tom Harkin of Iowa, declared it a non-starter and urged lawmakers to extend the rates for one more year — when they get back next week.

Back on the University of Iowa campus in Iowa City — where Obama campaigned against a rate hike last year — senior Julia Vander Wilt seemed resigned to the higher costs for her subsidized Stafford loans.

"It's a little bit insane that we're paying so much," the 22-year-old student said. "But I don't know if there's really anything I can do about it."

Associated Press writers Ryan J. Foley in Iowa City, Iowa, and Stacy A. Anderson in Washington contributed to this report.

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