U.S. Rep. Gene Green, D-Houston, recently urged colleagues to move quickly because Congress had "only three days left until student loan interest rates double from 3.4 percent to 6.8 percent on July 1st."
That statement, from a June 28, 2013, press release, matches recent declarations from other politicians; in fact, we had already started checking a version from President Barack Obama when we received Green’s release by email.
Green’s statement further describes the loans as Stafford loans. A spokeswoman for Green, Veronica Custer, emailed us details including a June 18, 2013, report from the Democratic staff of the Joint Economic Committee (Congress’ economic advisory committee) that said, "Unless Congress acts, the interest rate on subsidized federal Stafford loans is set to double from 3.4 percent to 6.8 percent on July 1st."
Half of the nation’s roughly 21 million college students get some form of federal aid, according to the government’s National Center for Education Statistics. Much of that comes in the form of federal student loans, guaranteed by the government and with low interest rates set by Congress.
And about 80 percent of federal student loans are Stafford loans, according to a June 13, 2013, Washington Post news story. Named in memory of a U.S. senator from Vermont who championed education measures, Staffords are either subsidized, meaning the government pays part of the interest, or unsubsidized, meaning the student pays all the interest.
Subsidized Stafford loans are available to undergraduates who show financial need; according to the Post story, they make up about a quarter of federal student loans. The unsubsidized variety doesn’t require proof of financial need and is open to graduate students as well as undergrads; about half of all federal student loans are of this type, the Post said.
About 7 million students are expected to take out subsidized Stafford loans after June 2013 -- and they’ll get the 6.8 percent rate unless Congress acts as it did at a similar juncture in 2012.
Tom Melecki, director of the Office of Financial Services at the University of Texas, described via email the effect of such a rate on a subsidized Stafford loan: "If an undergraduate were to borrow the $23,000 maximum – something which is increasingly common -- he or she would repay $31,761.60 over 10 years at a 6.8 percent interest rate, but $27,163.20 at a 3.4 percent interest rate. So this student would save $4,598.40 in interest payments at the lower rate."
The government pays billions to keep its interest rates on federal loans low. According to the Department of Education’s student aid website, rates range from 5 percent to 7.8 percent on non-Stafford types of federal loans taken out from July 1, 2012 to June 30, 2013.
Unsubsidized Stafford loans in the same timeframe have an interest rate of 6.8 percent and aren’t scheduled to change, so subsidized Staffords will match the unsubsidized kind if their rate reverts July 1, 2013.
In a 2007 overhaul of the federal student loan system, Congress passed a temporary act reducing the rate on new subsidized Stafford loans gradually from 6.8 percent to 3.4 percent, set to expire July 1, 2012, according to a Sept. 8, 2007, Los Angeles Times news story and a Sept. 28, 2007, Washington Post news story.
But lawmakers swooped in June 29, 2012, to postpone the rate hike until July 1, 2013, at an estimated cost of $6 billion.
The revised deadline looms amid competing claims about how the issue might be resolved.
A June 26, 2013, New York Times news story said plans had been offered by President Barack Obama as well as Republican, Democratic and bipartisan combinations of Congress members. Green’s press release said he supported a measure that would freeze the 3.4 percent interest rate for two years.
But with time running out and no agreement on the horizon, the Times said, it appeared likely that a measure addressing the rate would have to be applied retroactively to loans taken out after July 1.
Green said "student loan interest rates" would double from 3.4 percent to 6.8 percent July 1.
That accurately describes one specific rate change. However, the majority of new federal student loans won’t be affected.
We rate the statement as Mostly True.