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Ryan Johnson, Published June 23 2012

Local school officials: College debt cost hikes overblown

MOORHEAD – Unless Congress can strike a last-minute deal this week, the interest rate on a popular federal student loan will double, driving up the price many local students will ultimately pay to get their college education.

But despite the high-profile debate between House Republicans and Senate Democrats over how to pay for extending the lower rate, and a flurry of recent attention from pundits and politicians, the financial aid director at Minnesota State University Moorhead said the ultimate impact on borrowers would “not be significant” and is simply a change scheduled to happen for five years.

“Yes, it’s going to cost students more money,” said Carolyn Zehren. “But the wild claims that it’s going to be thousands of dollars more is exaggeration of the real situation.”

At issue is the interest rate for subsidized Stafford loans, a “cornerstone” of the federal student loan program that is awarded based on financial need. The loans differ from other federal options because the government pays for the interest while the student remains in school.

Zehren said Congress passed legislation in 2007 that gradually reduced the rate on these loans from 6.8 to 3.4 percent over a four-year period. The plan all along was to move the rates back to 6.8 percent – the same rate that unsubsidized Stafford loans have been at for years – for the 2012-13 school year.

But Eric Addington, financial aid director at Concordia, said the timing of this planned increase is “unfortunate” and has made it a political issue as the national economy recovers after the recession.

“The rate change was set by Congress before the financial meltdown,” he said. “When they set up this structure of rate changes, they didn’t know obviously that the economy was going to tank like it did.”

On Thursday, President Barack Obama called on Congress to “do the right thing” by finding a way to keep the interest rate at 3.4 percent, saying it was a matter of keeping college affordable for the more than 7 million students who qualify for subsidized Stafford loans.

“This is all about whether or not we are going to have the best-trained, best-educated workforce in the world,” he said. “That improves our economy. And higher education cannot be a luxury reserved just for a privileged few.”

But financial aid expert Mark Kantrowitz de-bunked some of the hype surrounding the issue in a letter published May 9 in The New York Times.

He said for the average annual subsidized Stafford loan of $3,357, students would pay an extra $6 per month at the higher rate if they were on a 10-year repayment plan. Over the course of the decade, the extra costs would amount to $761 – and the low 3.4 percent rate now in place on these loans only went into effect last July.

“The Stafford debate is more rhetoric than substance,” he wrote.

Still, Sen. Al Franken, D-Minn., said the issue is important because Minnesota students graduate with an average of $29,000 of debt, the fourth-highest in the country.

“While the Senate and House have had different ideas on how to get this done, I’m pretty hopeful that we’ll be able to work out a compromise before the July 1st deadline that will keep this interest rate from doubling,” he said in a written statement.

Student Financial Services Director Jeanne Enebo said in the 2010-11 school year, the most recent final data available, about 42 percent of the 14,407 students at North Dakota State University received subsidized Stafford loans, each one averaging $4,176.

But even with a national focus on the possible interest rate doubling, she said she has not heard from any students worried about the increased costs.

“I think students accept it,” she said. “I think they think, ‘Well, this is the way it is and this is what I need to do to get my education,’ so they’re accepting of it.”

Enebo said the possible rate hike should not be minimized because whenever students have to pay more, “it’s a big deal.”

But Zehren said the interest rate of a loan is not the “prohibiting factor” that keeps people from going to college in the first place.

“For the college student, it is the debt that a student is incurring and, in some cases, choosing to incur that level of debt versus needing to incur that level of debt,” she said. “That’s going to impact their financial decisions going forward, which is a real concern for our economy.”

Enebo said students seem to have learned that lesson in recent years, with more and more opting not to take the full amount of federal loans offered to them and instead work more or live a cheaper lifestyle while in school to prevent costly student loan payments for the decade or two after they get their degree.

The NDSU Student Financial Services office encourages a simple motto for borrowing, she said, and that applies to any students regardless of the interest rate they lock in: “Live like a college student while you’re in college so you don’t have to after you graduate.”

Readers can reach Forum reporter Ryan Johnson at (701) 241-5587