California college students relieved after Obama signs loan bill
by Megan Messerly, San Francisco Chronicle
News that President Obama signed a bill into law on Friday to restore lower interest rates for student loans was met with relief by many undergraduate students in California.
On July 1, Stafford loan interest rates doubled to 6.8 percent after Congress was unable to reach a compromise to keep rates at 3.4 percent. The new legislation, the product of bipartisan compromise after prolonged negotiations, links student loan interest rates to the financial market.
Shawn Kim, an undergraduate at UC Berkeley, is one of about 11 million students this year who are expected to have lower interest rates on their federal student loans as a result of the legislation.
Kim, who will enter his junior year in the fall, said he is “grateful” for the legislation because he and his family have had to take out all the federal student and parent loans offered to them for his first two years of college.
“Unless my parents hit the lottery, we’re going to be taking more loans for my next 2 years of college,” Kim said.
For the immediate future, the bill should prove a boon to Kim and his peers — the government currently borrows cheaply, meaning students can, too. But if the economy improves, the costs of government borrowing will increase, driving up federal student loan interest rates.
“With my sister entering college this semester, even the smallest increase in interest rates could affect my family in the future,” said Kim, whose sister will begin her freshman year at UCLA this fall. “It could mean piles of debt upon graduating or extra jobs for me and my sister.”
Next year, undergraduates will be able to borrow at 3.9 percent for subsidized and unsubsidized loans; graduate students can borrow at 5.4 percent; and parents can borrow at 6.4 percent.
UC Berkeley junior Tram Nguyen’s tuition is completely covered under the campus’ Blue & Gold Opportunity Plan — which guarantees all California residents’ tuition will be covered if their family earns less than $80,000. She still takes out about $5,000-$6,000 in federal student loans per year to pay for transportation, books and housing expenses.
“I know a lot of students had to give up the opportunity to go to UCs and instead go to community colleges because their families couldn’t afford it or the school didn’t provide enough financial aid,” she said.
In the wake of the new law, legislators are continuing to look for ways to make higher education more affordable for students and will continue to do so in the fall, when they will take up a rewrite of the Higher Education Act.
“(The legislation) might not change much for me since I’m halfway through my college career,” Nguyen said. “But it will definitely benefit incoming college freshmen in the future.”