Obama proposes changes to student loan interest rates

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Rebeca Piccardo/Contributing Writer

Students that cannot cover their financial needs through Florida Prepaid, scholarships or grants have the option to borrow money through subsidized and unsubsidized Stafford loans. However, the interest rates on federal student loans could change in the next year, affecting students who will have to take on a greater amount of debt to pay for their education.

According to the Chronicle of Higher Education, the Obama administration is proposing to change the way interest rates are set on federal student loans. Currently, Congress sets a fixed interest rate of 3.4 percent on subsidized loans, but the administration’s proposal seeks to make interest rates become market-based.

If the way interest rates are set for federal student loans become market-based, it is predicted that the interest rates will double for subsidized Stafford loans.

According to FIU’s Financial Aid website, subsidized Stafford loans do not charge interest while students are still in school or during authorized periods of deferments. Students must demonstrate their financial need through the Free Application for Federal Student Aid to be eligible to receive subsidized federal loans.

Unsubsidized Stafford loans do not require students to demonstrate financial need to receive these loans, but the federal government does not subsidize the interest payments on these types of loans.

At FIU, 15,559 undergraduate students and 4,944 graduate, professional and law students used loans this school year, according to Director of Financial Aid Francisco Valines.

For undergraduate students, the subsidized Stafford loans disbursed have a fixed interest rate of 3.4 percent and the unsubsidized Stafford loans disbursed have a fixed interest rate of 6.8 percent for the duration of the loan. Additionally, subsidized and unsubsidized loans have a loan fee of 1.0 percent of the principal amount of each loan that is borrowed.

Francesca Rosario, a sophomore majoring in journalism, has been taking out a subsidized loan each year. Rosario also receives scholarships, but needs loans to cover part of her tuition.

“My older cousin had already gone through the process of taking loans for FIU, so it made me feel comfortable with borrowing money,” said Rosario.

If interest rates on loans change, Rosario said she would still have to take out loans in order to afford her tuition, increasing her debt.

According to the Chronicle of Higher Education, some democrats favor extending the current rate on the subsidized loans indefinitely, although they do not have funds to finance their plan.

Rep. Joe Courtney of Connecticut introduced a bill that would postpone the interest-rate increase for two years.

“This issue of doubling the interest rates came up last year and Congress fixed it only for one year, hence we are here again,” said Valines.

If Congress does not prevent the change and loan interest rates are doubled, the financial aid office estimates an increase of $345 a year in payments.

“I don’t like the idea of increasing the interest rates on loans,” said Connie Buitrago, a junior in criminal justice, who started taking subsidized loans this past fall semester.

Buitrago does not think changing interest rates will prevent her from taking out another loan, because she pays them off before the semester ends.

“I think the interest rates would be more of an issue if one waits until they are done with school to pay his or her loans,” said Buitrago.

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