MIAMI (CBSMiami) – Thanks to the ongoing obstructionism from both political parties in Washington, DC, students taking out loans for the upcoming school year will be hit with nearly double the interest rates students were given last year.
On Monday, the interest rate on government-backed student loans will skyrocket from 3.4 to 6.8 percent. The rate hike had been avoided for a few years thanks to last-minute deals in Congress, but no such deal emerged this year.
The rate hike will hit approximately 7 million students looking to advance their education in community colleges, colleges, and universities. The rate hike also comes at a time when the overall student loan market is beginning to loom over a sputtering economy.
Across the nation, a cumulative $1.2 trillion is held in student loan debt by current and former students. Most of the debt is not paid on time and the federal government has said it’s not helping unless Congress acts first.
“I think this is really out of the Fed’s purview,” said Federal Reserve Bank of New York President Bill Dudley. Instead, he left it up to Congress to come up with a refinancing plan if the student loan bubble begins to deflate.
Democrats want to tie rates to short-term borrowing costs to the federal government, which can be very small. Republicans and the White House plans tie the interest rate to the rate paid on 10-year treasury notes.
As the student loan crisis begins to take shape, the company much of the loans have been sold to, Sallie Mae, and the federal government are making billions. According to the Huffington Post, the federal government will receive a profit of $51 billion on the federal student loan program.
Just over the last five fiscal years, the federal government has made approximately $120 billion in profits from students and their families borrowing to finance the chance at a higher education.
The rate hike will hit the state of Florida hard. According to the Miami Herald, Florida International University is in the top 20 of students impacted by the July 1 rate hike. A total of 13,750 students at FIU will be impacted, according to the Herald.
According to Congress’ Joint Economic Committee, the estimated additional cost for the average student due to the rate hike will be roughly $2,600.
The student loan rate hike is just one of multiple steps the government has taken in recent years to cut costs despite more and more jobs requiring higher education. According to the Herald, other cutbacks have included eliminating the in-school interest subsidy for graduate-level student loans and eliminating Pell grant awards during summer terms.
Florida lawmakers have followed a similar plan cutting education and student aid to help reduce the deficit. Florida has also cut the Bright Futures scholarships almost each year, according to the Herald.
In the meantime, Congress will go into the July 4th recess with no new plan in place and students facing greater debt as a result. Graduating students in the state of Florida will face an average of $23,054 in student loan debt, many times more than their first job will pay in a depressed economy.
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