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Due to Congressional inaction, the interest rates on federally subsidized student loans doubled on July 1 from 3.4 percent to 6.8 percent. The change will affect 73,051 students in Connecticut, and in total the rate increase will hike the cost of Connecticut students’ loans by $68.4 million. That translates into a $937 increase in debt per student, per loan. However, because most new student loans are issued in August and September, Congress can still pass a retroactive fix.
“Student loans should make college more affordable so that students can be better prepared for the future,” said Abe Scarr, ConnPIRG Director. “But instead the federal loan program is burying them in debt. With the doubling of the interest rate, Congress is pushing student borrowers to their limit.”
The federal government is projected to collect 12.5 cents for each dollar loaned in the subsidized Stafford student loan program in 2013-14. In total, student loan programs are expected to generate $50 billion in revenue for the federal government this year.
The low 3.4 percent rate for subsidized Stafford loans was set to expire in 2012, but Congress and the President temporarily extended it for one more year. The extension ran out today, causing the rate to double. Student champions in Congress, including Congressman Courtney, and Senators Blumenthal and Murphy, supported a plan that would have kept the rate low. But Congress was blocked in their attempts to prevent the increase by legislators who insisted on charging students more for their loans, as a way to lower the deficit.
Student debt is a growing hardship for many students and recent graduates, limiting their financial options and making it difficult for them to save up for buying a home or starting a family. Just last year, student debt nationwide hit the $1 trillion mark, passing credit card debt as the country’s top form of consumer debt. The average college graduate with loans in Connecticut currently has $28,783 in student debt.
“This rate increase not only discourages students, workers, and the unemployed from getting the college education they need to succeed in today’s economy, but it creates a drag on the economy at large,” said Scarr. “Congress should reverse this wrong-headed rate hike as soon as possible.”
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