GRAND RAPIDS, MI - With more than $30, 000 in loans, Grand Valley State University nursing student Shannon Irish knows the sacrifice it takes to pursue a college degree.
So when she heard that interest rates on federally subsidized Stafford loans are set to double today to 6.8 percent, Irish wasn’t pleased, fearing the move would further hurt already cash-strapped students.
“I think it makes it really hard for students, ” said Irish, 23, of Greenville. “I know it’s pretty scary already taking out all those loans.”
Federal lawmakers, after weeks of discussions, failed to reach a deal to keep rates on the popular program at 3.4 percent, where they had been since July 2011. The increase, which affects new loans, would cost the average borrower $2, 600 over a 10-year period, according to a report by Congress’ Joint Economic Committee.
The number of recipients of subsidized Stafford loans at Michigan's 15 public universities during the 2011-12 school year.U.S. Department of Education
Students, interviewed this morning at GVSU’s Pew Campus in downtown Grand Rapids, said they were disappointed a solution wasn’t reached. For many, loans are a crucial component of financing their college education, especially as tuition continues to rise.
The average debt among Michigan students who borrowed to pay for college and graduated in 2011 was $27, 451, according to the Institute for College Access and Success.
Zach Hagerman, a finance major, said although the increase is less worrisome for students at GVSU because its tuition rate is cheaper than some other schools, he still wishes a solution had been reached.
“There is going to be a huge debt bubble, ” said Hagerman, who has about $25, 000 in loans. “It is disappointing.”
Related: West Michigan colleges share strategies to reduce mounting student debt
The number of students obtaining federal Stafford loans has grown over the past decade as enrollment and tuition have grown.
Subsidized Stafford loans at private colleges in the Grand Rapids-area during the 2011-12 school year.U.S. Department of Education
Nationwide, 35 percent of undergraduate students took out Stafford loans in the 2011-12 school year, up from 23 percent in 2001-02, according to College Board’s Trends in Student Aid 2012.
Most students obtain a mixture of subsidized and unsubsidized loans, according to the report. Seventeen percent obtained just the subsidized loans, which are awarded to students based on income. The government covers interest payments on subsidized loans while a student is in school.
Michelle Bukaweski, a senior at GVSU studying nursing, says she’s confident she’ll be able to cover payments on her $30, 000 or so in loans when she graduates.
But she worries about students who may have trouble finding a job after finishing school – and the rising interest rate only adds to the burden.
“It’s a little intimidating, ” she said.
At GVSU, 13, 488 students – more than half the student body – received subsidized Stafford loans during the 2011-12 school year, according to data from the U.S. Department of Education. The average award was $4, 902.
Related: Rising student loan interest rates would push students deeper into debt
Student advocacy groups have pushed in recent weeks for Congress to offset the jump in interest rates. But as of now, several proposals appear to have fallen apart, including one deal that would link interest rates to financial markets.
Currently, Congress sets the rates.
The Institute for College Access and Success, or TICAS, has argued against tying interest rates to financial markets, saying a cap is needed to prevent rates from climbing too high.
Students could benefit from tying rates to markets in the short-term because current interest rates are low. But TICAS argues students would suffer as rates climb when the economy improves.
“A rate cap is essential to ensure that student loans remain affordable and that the highest interest rates don’t deter students from starting or completing colleges during periods of high interest rates, ” according to TICAS, which has argued in favor of a proposal that would freeze interest rates at current levels for another year by “closing a tax loophole.”