AVMA Advocate: Undergraduates Face Interest Rate Hike on July 1

By Gina Luke, assistant director, Governmental Relations Division

Next month, undergraduate subsidized loan interest rates may increase from 3.4 percent to 6.8 percent. As a result, undergraduates would pay on average an additional $1,000 in interest for each year that Congress allows the higher rate. The interest rate increase affects only new loans made on or after July 1, 2012. The rate increase does not affect previous loans, which keep their existing interest rates. 

In 2007, Congress passed the College Cost Reduction and Access Act of 2007, which phased-in a temporary interest rate reduction on subsidized Stafford loans to undergraduate students, gradually reducing the interest rates from 6.8 percent to 3.4 percent over four academic years. The rate reduction applied only to subsidized Stafford loans to undergraduates. Interest rates on unsubsidized Stafford loans to undergraduate students remained at 6.8 percent, as did the interest rates on subsidized and unsubsidized Stafford loans to graduate and professional students. Interest rates on PLUS loans remained at 8.5 percent (FFELP) and 7.9 percent (Direct Loans). Congress did not reduce the interest rates on other types of federal education loans because of the high cost. Also, Congress phased-in the interest rate reductions to reduce the cost. The legislation did not permanently reduce the interest rate to 3.4 percent because of the cost, which is about $6 billion per year. 

While there is bipartisan interest in preventing the interest rate from rising, there is strong disagreement over the “pay-fors” – how to pay the $6 billion price tag. The Senate, on May 24, rejected bills introduced by Democrats and Republicans over pay-fors, while the House on April 27 passed H.R. 4628, the Interest Rate Reduction Act, to keep the interest rates at 3.4 percent. 

Due to the enactment of the Budget Control Act of 2011, graduate and professional students (including veterinary students) are no longer eligible to receive subsidized Stafford loans starting July 1, 2012. While graduate-professional students may borrow the same amount of money, it will be entirely unsubsidized. The interest rate on Stafford loans to graduate-professional students remains at 6.8% since the switch to fixed rates on July 1, 2006. 

For more information please contact Gina Luke, assistant director, AVMA Governmental Relations Division.

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