Before its August recess, Congress reached a deal that places federal student loan interest rates under a market-based system, rather than the fixed-rate standard. Advocates for graduate students, however, want lawmakers to go back and revise the legislation, claiming that it could spur a jump in student loan interest.
The new system would bring an immediate rate drop for graduate students, from 6.8 percent to 5.4 percent, but potentially could increase rates to a cap of 9.5 percent in the event of an economic turnaround. In contrast, undergraduate rates have a lower cap of 8.25 percent. Such concerns are underscored by a recent jump in Treasury yields as the Federal Reserve prepares to scale back its bond-buying program.
This could make life more difficult for borrowers like Cristina Stam, a first-year graduate student at Georgetown University's law school, who borrowed $30,000 this year and could have $90,000 in debt when she graduates in three years. Students want these issues to be part of lawmakers' debate on the reauthorization of the Higher Education Act, which has guidelines for distributing federal student aid. Graduate student groups want their interest rates capped at 6.8 percent and the revival of a subsidized loan program under which graduate students finish school before they have to begin to pay back their loans.