Increased student loan rates raise cost of diploma

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When some students graduate from college, they don't just receive a diploma -- they're also handed the responsibility of paying back money they borrowed to finance their education.

And now, that burden on students is likely going to increase.

A standoff on Capitol Hill between opposing parties is preventing any decision to be made regarding the imminent increase in student loan rates.

Beginning today, the interest rate on new subsidized Stafford loans will double, going from 3.4 percent to 6.8 percent. Only low- and middle-income students are eligible for the subsidized loans.

Congress' Joint Economic Committee said the average student will end up paying about $2,600 more because of the new rate.

Today's deadline is the result of the expiration of the College Cost Reduction and Access Act.

"There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families, instead of closing tax loopholes for the wealthiest Americans and big corporations," said Adam Jentleson, spokesman for Senate Majority Leader Harry Reid, D-Nev. "Democrats continue to work in good faith to reach a compromise, but Republicans refuse to give on this critical point."

However, Senate Minority Leader Mitch McConnell, R-Ky., said in a statement that the reason for the gridlock is that Democrats continue to block Republican proposals while they resist President Barack Obama's plan to extend the 3.4 percent rate by closing tax loopholes.

Local legislators have expressed concern about the impact on Pennsylvania students who wish to take out new loans.

State Sen. Wayne Fontana, D-Brookline, said he hopes the federal government realizes the potential negative effect of the increase.

"I know some senators are fighting, and they need to continue fighting and bring it down," said Mr. Fontana, who is also the vice chairman of the Pennsylvania Higher Education Assistance Agency. "From the PHEAA perspective, it will affect the grants that we give ... and the education [students] could get."

If the borrowing rate is not reduced, Mr. Fontana worries, many Pennsylvania students will not be able to absorb the increased financial burden of attending local universities. White House statistics show 393,584 college students in Pennsylvania have borrowed $1.61 billion in federal student loans.

"It is certainly not a good thing and is devastating to some students as is and will make it worse for others trying to pay for college," he said.

Jade Leitzel, 20, a junior studying corporate communications at Duquesne University, said the rate increase would hurt.

Ms. Leitzel plans to work two jobs in the fall, but when it comes down to it, work doesn't help much because she can't begin paying back the balance on her loans until after graduation. She will be $32,000 in debt by the time she walks across the stage at commencement, even though she received some help from her mother along the way.

Many students, Ms. Leitzel included, always dreamed about being able to support themselves after they graduate.

"Everyone has a perfect plan to get their own places and sustain themselves after graduation," Ms. Leitzel said. "The truth is, so many people have to go live with their parents. I may have to do that, too."

Ms. Leitzel's situation is not unique.

Of the $10,000 in loans University of Pittsburgh junior Simon Brown receives every year, the majority come in the form of the federal Stafford loans.

The history and philosophy major sees two possible problems with the rate increase -- students already in a financially unstable situation will think less of going to college, or students will begin to choose to study in certain areas that they think will be financially stable in the future.

"How cognisant you are of your finances can affect you in a number of different ways that are all bad," Mr. Brown said. "College will become less and less possible and attractive for students who already have financial impacts like lower socioecomonic backgrounds, so it definitely is a bigger issue for students like that."

Keith New, communications director for PHEAA, said the agency's advice on how to avoid defaulting on the student loans remains the same.

He said borrowers simply should avoid loans as much as possible. The key factor is only borrowing what is necessary and what can be afforded.

Before taking out a loan, Mr. New encourages all families to look to see if there are programs in place to help a borrower comfortably repay the loan.

"Defaults are the last thing we want any graduate to have to take care of," he said. "Parents should be very careful regardless of interest rate."

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The Associated Press and McClatchy contributed to this report. Claire Aronson: caronson@post-gazette.com, 412-263-1964 or on Twitter @Claire_Aronson. Jessica Tully: jtully@post-gazette.com, 412-263-1159 or on Twitter @jessalynn4.


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