Just days before the July 1 deadline, Senate leaders said Tuesday they have reached an agreement to prevent the doubling of the student loan interest rate.
Senators of both parties are seeking to extend the current interest rate – 3.4 percent for new federally subsidized loans – for the next year. The rate will double to the pre-recession level of 6.8 percent if no deal is reached before July 1.
“We’re very close to having everything done. But until we get everything done, nothing’s done,” Senate Majority leader Harry Reid (D-Nev.) told reporters Tuesday.
To cover most of the $6 billion cost of keeping the lowered rate, senators proposed changes to federal pensions. Republicans also suggested limiting the time students can receive federally subsidized loans to six years.
The government estimates 7.4 million students receive this type of loan, and without a deal each would pay about $1,0o0 more in interest.
About 4,700 undergraduate students at GW received more than $30 million in education funding through Stafford loans this year.
Obama has demanded Congress come to an agreement, raising complaints by Republicans who say he is not helping with negotiations to grab attention of student voters.
The highly publicized debate has made headlines for months. This spring, Obama launched a two-day college tour focused on the student loan debate. In March, students nationwide signed more than 130,000 letters to Congressional leaders to protest the higher interest rates.
But as the deal takes shape, Mark Kantrowitz, founder and publisher of FinAid, points out that a rate hike would have little effect on the payments of individual students.
“This is a convenient tool for beating the drum of college affordability,” Kantrowitz said.
Kantrowitz said keeping the rate at 3.4 percent versus 6.8 percent translates into about a six-dollar difference in monthly payments for holders of subsidized loans.
Instead, more focus should be given to funding to Pell grants, Kantrowitz said, which provide need-based grants to low-income families.
“Certainly, those who get the benefit will like being able to get an additional cup of coffee or two a month, but it affects them only after they’ve already graduated,” Kantrowitz said, “What matters is how much money can you get for college and when do you have to start paying it back.”