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Student loan rate deal drawing praise and criticism

5:51 PM, Jul 19, 2013   |    comments
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TAMPA, Florida -- It's a plan that could affect millions of college students and their families.

A bipartisan group of senators has reached a deal to give students lower interest rates on loans starting this fall, after those rates were set to double this month.

For students like Briana Solan, a public relations major transferring to USF this fall, it's one less worry for her wallet.

"I think that's a great idea," Solan says about the Senate proposal. "They cut funding all the time, but they don't think that when we cut corners in education, they cut corners on all of our futures."

If the plan is approved, it would prevent the interest rates on federally subsidized Stafford loans from doubling, which could save some students around $2,600 a year.

Instead of increasing from 3.4 percent to 6.8 percent, the rate for undergraduates borrowing this fall would be set at 3.85 percent. Graduate students could borrow at a 5.4 percent rate, instead of 6.8 after the hike scheduled for this month. Parents would have access to loans for their children at 6.4 percent.

As USF's Director of Financial Aid Services and a mother of an incoming freshman, Billie Jo Hamilton knows the importance of this issue, and says the bipartisan compromise would offer stability for students.

"This is good in that it provides a more permanent solution moving forward," she says. "It locks in the loan at the rate it was at the time the student borrowed the money, so they can actually make a decision each year knowing what the interest rate is if they want to continue borrowing."

And while it's set to benefit current students, the plan has drawn criticism from groups like the Institute for College Access and Success, which says it could cost students in the future.

"It's really more of a missed opportunity than a cause for celebration," says the higher education affordability nonprofit's president, Lauren Asher. "It's going to cost students and families more than leaving current rates in place would, and that means putting even more of a burden on folks who are already struggling to pay for college."

That's because the rates would last through the 2015 school year, and could then climb as the economy improves. Rates are capped, but those caps are higher than what current rates are, even after being doubled.

For undergraduates, those interest rates would be able to go no higher than 8.25 percent. They would be capped at 9.5 percent for graduate students, and 10.5 percent for parents. The Congressional Budget Office estimates that interest rates wouldn't reach those caps for at least a decade.

"Students and families really need comprehensive reform that looks not just at student loan rates, but at overall college costs," Asher says.

Senate Majority Leader Harry Reid has said a vote will be taken on student loan rate changes no later than next week, potentially affecting the paths of seven million students heading to college this fall.

"We're going to be focusing on trying to getting a career and paying that back and it's a lot of hassle," Solan says. "You don't want your doctor stressing about student loans."

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