Interest rates for Stafford student loans doubled on July 1 to 6.8 percent from 3.4 percent when Congress failed to pass legislation on the issue. While the 17.5 percent of Dartmouth students who currently have Stafford loans will not see their rates rise, the increase will impact those who take out these loans for the 2013-2014 academic year.
The rate increase applies to loans taken out by undergraduate students on or after July 1.
"Federal interest rates have fluctuated for as long as these programs have existed," Dean of Admissions and Financial Aid Maria Laskaris said. "We have no control over the rate that the federal government sets or student educational borrowing."
The interest rate on Stafford loans fluctuated between 3.37 and 8.25 percent between 1994 and 2007. When Democrats took control of Congress in 2007, they passed legislation that gradually lowered interest rates on subsidized Stafford loans, and the rates decreased to 3.4 percent from 6.8 percent.
As a member of the Consortium on Financing of Higher Education and the National Association of Student Financial Aid Administrators, the College advocates for permanently lower interest rates.
Subsidized Stafford loans are available for undergraduate and graduate students who demonstrate financial need based on criteria in the Free Application for Federal Student Aid. For a subsidized loan, the government pays the interest on the loan while the student is attending school or defers the loan.
Representative Carol Shea-Porter, D-N.H., spoke on the House floor on June 27 and urged members of Congress to pass legislation on interest rates instead of going on recess for the fourth of July.
"She went onto the floor of the House and said let's stay here, let's not go on recess for a week and let's figure this out so that we can get students and families and anyone looking to get a college education the security and piece of mind that they deserve,'" said Ben Wakana, the press secretary for Shea-Porter.
Shea-Porter co-sponsored the Student Loan Relief Act of 2013, geared toward maintaining the current interest rate of 3.4 percent for another two years to allow Congress time to negotiate a long-term solution. House Republicans prevented the bill from coming to the floor for a vote.
The Republican-led House passed a bill in May addressing four types of student loans subsidized and unsubsidized Stafford loans, GradPLUS loans and Parent loans. The bill, labeled H.R. 1911 and called the "Smarter Solutions for Students Act," based interest rates for all subsidized and unsubsidized student loans on a 10-year Treasury note plus 2.5 percentage points, with a cap of 8.5 percent, according to a cost estimate released by the Congressional Budget Office.
The bill passed on a party-line vote, and President Barack Obama promised to veto the bill.
"The problem with this system is that over the life of a student's loan, that interest rate is going to float higher than the 6.8 percent," Wakana said. "So H.R. 1911 actually makes it more expensive for students and parents to pay for college."
During the 2012 presidential elections, President Obama urged Congress to pass a one-year extension of lower rates for student loans. This year, in the absence of political pressure, Democrats and Republicans were unable to compromise on a bill to address the rate increase.
The Joint Economic Committee published a report in June revealing that student loan debt rose to nearly $1 trillion at the beginning of this year from $550 billion in 2007. Student loan debt is the only type of consumer debt that continues to rise in the wake of the recession and subsequent recovery.
Given increasing costs of higher education, more than 50 colleges and universities have adopted a no-loan financial aid pledge in the past decade.
Laskaris said the College has no plans to reinstitute a similar policy. Dartmouth joined other Ivy League universities in making the no-loan pledge in 2008 for families with incomes under $75,000, but revoked the pledge in 2010, along with Williams College.
Students may choose from Stafford loans, Perkins loans, Parent loans, also known as Direct PLUS loans, and a list of private alternative loan lenders. New Hampshire has the highest level of student debt in the United States, according to an October report released by the Project on Student Debt.
Laskaris said the financial aid office helps students and families understand the College's financial aid offerings and the impact of federal policies. The office recommends different options on a case-by-case basis.
Despite "hype" over the new policy, students and universities are unlikely to change their behavior, said Elizabeth Keuffel, president of the New Hampshire Association of Student Financial Aid Administrators. Students will still choose to attend college and receive loans, and most universities will be unable to offer additional aid.
Students taking out loans will not begin the repayment process for years, by which time the policies are likely to have changed, Keuffel said. Additionally, the increased interest rate is beneficial to other students, since it funds the federal Pell grant program.
George Philipose '15 said that although the rise in interest rates is unfortunate, it is worthwhile if it helps the government become more solvent and reduce debt. He added that it may make students more responsible about borrowing.
"Students need to be aware of the loans they are taking on," he said. "Maybe that will change how students choose the college they are going to."
Most people undervalue government services and do not realize that they are going to have to pay for them, he said. It is already generous that students do not accrue interest on these loans while they attend college, he added.
Noah Smith '15 said the rise of interest rates has no effect on his choice in studies or occupation.
"If I were to change my studies, it would be saying that the market place values engineers more than it values humanities," he said. "Dartmouth is not a trade school."
