Student Loan Compromise a Positive Step Forward, but Concerns Remain

Last week, both chambers of Congress voted to pass a compromise student loan measure.  The bill was a long-awaited and retroactive response to the July 1 rate hike from 3.4 percent to 6.8 percent for federally subsidized Stafford undergraduate loans. Today, President Obama also signed the measure into law.

Before the passage of this compromise, Stafford loans and Direct PLUS loans were fixed at a predetermined rate.

Last week, Congress changed this by pegging interest rates to ten-year Treasury rates with an added percentage for administration of the program and a finite cap on the interest rate of 8.25–10.5 percent, depending on the type of loan.  While the interest rates are fixed for the duration of the loan, linking rates to ten-year Treasury notes means that at the start of each academic year rates may fluctuate based on market performance.

This measure, which passed after much partisan wrangling on both sides of the aisle, truly is a bipartisan compromise.  While it is far from perfect, doing nothing threatened to make higher education cost-prohibitive for Latino and other minority students.

Statistics show that these students are overwhelmingly more likely to seek out federal loans to fund their college education.  Based on data collected by the U.S. Department of Education, the change in interest rates is expected to affect 7.4 million college students nationwide, nearly one million of whom are Latinos.

Nonetheless, while congressional action to help curb the cost of repaying education loans and provide some relief to our nation’s college students is long overdue, serious concerns remain about the fluctuating rates and their potential to rise.

The cost of higher education is already a deterrent for many Latino students, and the potential for the interest rate on federally subsidized loans to nearly triple is worrying.

Access to college education, as we all know, is critical to ensuring a strong and robust middle class, making it all the more urgent to ensure that this growing demographic is not shut out.