Thousands of local university students will now see lower borrowing rates for federal student loans after the House and Senate passed a bipartisan bill to retroactively lower rates, starting July 1.
For the new school year, undergraduate students can get subsidized and unsubsidized loans at a rate of 3.9 percent, graduate students can borrow at 5.4 percent and parents at 6.4 percent. After the sequestration, the rates jumped to at least 6.8 percent July 1.
After this year, the rates will be tied to market changes for the next nine years, and are capped at 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for parents.
“It’s going to be a matter of perspective; 8.25 percent might not seem too high if you’re buying your home at 18 percent,” said Ed Turney, associate director of student financial aid and scholarships at the University of North Texas. “It’s a little hard to predict, though.”
At UNT alone this past academic year, 13,588 students received federal direct subsidized Stafford loans, totaling more than $55.6 million.
Turney said that while he wishes the rates were at 1 percent or 2 percent to make loans more manageable for students, he was relieved that a bill passed retroactively and that there is a plan in place for the next 10 years.
“I think it’s a good thing because it does obviously reduce the interest rate,” he said. “Of course, you want it to be as low as possible for the students, but it does put a plan in place and it reduces the interest right now, and I think that’s a good thing.”
The bipartisan bill also was a relief to those at Texas Woman’s University, said Richard Nicholas, vice president of student life. For the 2013 academic year, 6,349 TWU students got federal direct subsidized Stafford loans, for a total of $28.7 million.
Nicholas said he doesn’t think the legislation will have a large impact this year, though he is glad the rates are still lower than those of private loans. His concern is for the long term — what will happen if and when the rates hit the cap.
“If the variable rate should begin to approach the cap, meaning much higher interest rates, that will typically have a negative impact on students choosing to borrow to go to school, and that means a negative impact on the institutions if the students cannot afford to attend, and a negative impact on enrollment, universitywide, statewide and more,” Nicholas said.
At North Central Texas College, the average student does not attend full time and therefore is not eligible for these types of loans, said Billy Roessler, vice president of student services. However, because of the economic downturn, the school has seen a large increase in full-time students, as well as this type of aid.
For the 2011-12 school year, a little less than 2,500 of the school’s 10,000 students received federally subsidized loans.
Roessler said the hope is that students’ access to college won’t be adversely affected.
“At community colleges, we want students to be successful, but we want to provide access to students who may not have been able to gain access to other higher education,” he said.
These federal loans help lower-income students and nontraditional students who are looking to obtain a certification or degree later in life, Roessler said.
“Federal loans in general are more favorable for student borrowing than private loans, because there are some protections built in. It’s good to be able to continue that for the short term,” he said. “If you go back to school, the federal program has deferments, and not all private borrowers will allow that. There’s always extensions possible, but the federal loan system, even at a slightly higher rate, is still favorable.”
The Associated Press contributed to this report.
JENNA DUNCAN can be reached at 940-566-6889 and via Twitter at @JennaFDuncan.