Interest rate woes linger for grad students

The bill ties federal student loan rates to a market-based system.

Interest rate woes linger for grad students

Roy Aker

Congress passed a bill temporarily lowering student loan interest rates this summer, but some graduate students are concerned their rates will soon go up.

The bill tied interest rates on multiple student loans to the market, which means rates could rise as high as 9.5 percent on direct, unsubsidized graduate Stafford loans, if the economy improves as expected.

Although the measure initially lowered interest rates from 6.8 to 5.4 percent, rates are linked to the 10-year Treasury note, so they could rise if the economy strengthens.

In addition to the Treasury note rate, the federal government also adds 3.6 percent in interest for additional costs to the graduate rate and 2.05 percent to the undergraduate rates.

University of Minnesota student government organizations have expressed their disappointment with the bill because interest rates may rise for future students.

Kevin Lang, University graduate student and member of the Graduate and Professional Student Association, said it’s unfortunate for students who may be in the middle of a long-term degree because their rates could still increase in future years.

“As a graduate student, I would have liked to see some analysis as to how much it’s going to add to the burden of just the sheer dollars in student loans that are taken out,” he said.

Sen. Terri Bonoff, DFL-Minnetonka, said although she understands why rates are tied to the market, she takes issue with the added 3.6 percent interest.

“When we know how important education is,” she said, “why would we want to disadvantage any student in terms of the burden of carrying debt?”

Matt Forstie, Minnesota Student Association Legislative Coalition chairman, said the new bill will benefit current students but could hurt future students at both the graduate and undergraduate levels.

For undergraduates, interest rates are capped at 8.25 percent,  1.25 percent lower than that of graduate students.

Forstie said he thinks lawmakers set higher caps for graduate students because some assumed they would find higher-paying jobs.

“In some cases that might be true, but I don’t think it’s a perfect justification for that,” he said.

Forstie said MSA members have always advocated for a cap on market-based interest rates, but he said these caps are too high.

“Looking forward to the future of higher [education], I personally don’t think the solution that was reached was the best one,” he said, “or one that is particularly sustainable primarily because of those high caps.”

Forstie said he thinks there’s still an opportunity for future work on student loan policy, adding that MSA will lobby for changes to the policy as part of its advocacy platform this year.