Student Loan Rates No Sure Thing

Mary Bove

Callen Clark, Reporter

Students who took out loans for their education the vast majority at MU – will pay lower interest rates – at least for a while.

According to The United States Department of Education, Presi- dent Barack Obama put his seal of approval on a new bill, which caps the interest rate at 3.25 percent.

Jane Dessoye, Executive Director of Enrollment Management, said she’s thrilled Congress came to a decision to pass the bill because congressional bickering threatened to allow the rates to double.

“By law, on July first the interest rates doubled. They [Congress] didn’t act or come to an agree- ment or consensus until mid July, but that agreement was retroactive to July first, which basically reversed the doubling of the interest rates,” said Dessoye.

She said every part of the loan bill was deeply debated in Congress. The House of Representatives, currently with a Republican majority, wanted a bill that would tie interest rates to the national treasury, and that those rates wouldn’t be fixed and that they could be capped. The Senate, which has a Democratic majority, wanted the bill to keep a cap off rates that wouldn’t be tied to the treasury and would also be fixed.

“Ultimately when the dust settled the final agreement was that the interest rate would be tied to the treasury, which is what the House wanted. The interest rate would be capped at 8.25 percent, which is also what the House wanted, and the Senate got its wish that the interest rate would be fixed for the life of a loan,” Dessoye said.

She said three types of loans were impacted by the new agreement.

The first type of loan is subsidized, which means students don’t have to worry about paying off the loan until after they’ve left school.

The second type is unsubsidized, which required students to pay interest on their loans while attending school or agree to pay the interest amount that builds during their college careers.

The third type of loans is for graduate students.

“On the subsidized, what was a 3.4 percent rate stayed a 3.4, excellent for students. The unsubsidized was even better for students. Their old rate was 6.8. That’s now 3.4, so that’s excellent news. The graduate rate was 6.8. That is now 5.42 percent” said Dessoye.

Dessoye did a little research to find out how this change affects students at Misericordia. According to her findings, 67 percent of full-time undergraduate students and 40 percent of part-time students have subsidized loans. She said 77 percent of full-time students and 45 percent of pert time students have unsubsidized loans. Eighty five percent of fulltime and 28 percent of part-time graduate students benefited from the 1.4 percent decrease in interest rates.

Dessoye said the main reason all of the interest rates dropped was the fact that rates are now tied to the treasury, which left her postulating as to why the Senate would want to keep the change from happening.

“I think the primary reason was financial in nature. How would they pay for the program if the interest rate was lower than they thought reasonable or acceptable? That, actually, is a part of the agreement. They debated ’how do we pay for this if we allow the rate to stay where it is?’ and they agreed that the cost of keeping the rate low would be offset by closing some tax loopholes for energy companies,” said Dessoye.

While that’s good news, it comes with a caveat. Because student loan interest rates are tied to the treasury, certain events could make the rates go up even higher than they were before. If the US economy were to take a hit because of something like war, students could be worse off. Sophomore Jacob Honoosic has mixed feelings on what this could mean for students.

“With the loan rates getting locked in at any one time it can either be a blessing or a curse for someone. If you happen to be lucky enough to get locked in during a lower year, then no matter how much it goes up you’re locked in at three, four percent.

If you take out a loan where the rate is at the cap, then you’re stuck paying that insane interest rate for the rest of that loan’s life,” said Honoosic.

He said even though he is starting his sophomore year, he’s worried about what the future may hold in regards to the cost for borrowing for school. He is concerned about his ability to pay back his loans after he graduates, based on the economic climate at that time. While he is in a good position right now that could change at any time.

“I know that I’m going to have to have a job set up after I leave here, because six months after I graduate people are going to be knocking on my door asking where the loan money is. And yeah, I got lucky with a low rate this year, but what about next year and after that? Am I going to be able to cover that cost?” Honoosic said.

He said there are strategies he will use to increase the likelihood that he will be employed shortly after graduation, but the thought of not being able to pay his bills when the time comes is a still nagging fear.

“If the cards don’t come out, and I don’t get one [job] maybe even a year after graduating I’m going to have people calling for loans that I’m not going to be able to pay. I would have no real assets that I could liquidate, and I don’t even know how I would go bankrupt if I have nothing to go bankrupt on,” Honoosic said.

Borrowers are prevented by law from discharging student loan debt through bankruptcy.

[email protected]