Legislation to keep loan interest in check

President Obama signed legislation July 6, 2012, that will affect financial aid for undergraduate and graduate students across the country.

The legislation is intended to keep interest rates on federal student loans from doubling. This fix will save approximately seven million students from paying an additional $1,000 on their student loans, Obama said in his weekly radio address the week after signing legislation.

Amanda Sharp, UNA associate director of student financial services, said the two biggest changes students will see are in funding for graduate students and the elimination of a grace period for interest accruement.

“Graduate students will only be eligible for unsubsidized or private loans,” Sharp said. “Students also need to realize that for any subsidized loans they take out between July 1 of this year and July 1 of next year, the interest will begin to build up on that loan as soon as they graduate. The six month grace period will be gone.”

While the legislation will fix the current interest rate for subsidized loans at 3.4 percent, unsubsidized loans will still be subject to interest rate changes. Private loans will also remain subjective and unaffected by the legislation, even though there is currently an estimated $168 billion debt just in private loans, according to FinAid.org.

Jacob Spratt, an economics and finance major, said this new legislation could lead to more borrowing on students’ behalf.

“Keeping the interest rate low on loans could promote borrowing,” Spratt said. “Continuing to give students the ability to borrow will only increase enrollment and drive up tuition.”

According to the legislation, though, the current interest rate freeze is only good for one year. Each year, on July 1, Congress will re-visit the state of student loan debt and either modify the parameters or keep the old ones.

“To be honest, I doubt students will even notice a change,” Sharp said.

Obama also said during his weekly radio address that higher education shouldn’t be an unaffordable luxury for Americans and that it is instead an economic necessity.

“You can certainly have that position,” Spratt said. “But it ceases to be higher education if that’s the case. This legislation could be something that helps the country in the long run, but college isn’t for everyone.”