The argument isn’t over whether to allow the rate on the most popular type of federal loan to rise above 3.4 percent, the level set by law until July 1. It’s about how much borrowing costs will increase. “The likelihood of students keeping the interest rate they had for the last two years is diminishing by the hour,” said Terry Hartle, senior vice president at the American Council of Education, the largest lobbying group for colleges and universities.
“The outcome will be students will pay more than 3.4 percent in the short term,” he said in a telephone interview. Unless Congress acts, the interest rate for subsidized Stafford loans, available to undergraduates from low-income families, will increase to 6.8 percent from 3.4 percent. More than 7 million students use that direct-from-Washington loan program. Instead of passing legislation to extend that rate or set a new flat rate, lawmakers have been negotiating ways to let the rate float by linking it to the yield on the 10-year Treasury note.
Getting an informal agreement on the concept of flexible rates was the easy part. The more challenging part of the negotiations, according to those involved, has been figuring out how much flexibility to build in, and how much profit the government should extract.