Federal Loan Hikes Worry University Students

Texas Tech University graduate student Anthony Ramirez received grants and scholarships and even worked an extra job to pay for his undergraduate education in Lubbock. At the end of the day, it still was not enough.

“I had no choice but to take out a loan to cover that remaining cost,” said Ramirez, who will graduate in 2014 with a master’s degree in communication studies. 

Thousands of Texas students like Ramirez will now have to pay 6.8 percent interest — a number that doubled virtually overnight — on any new federal direct subsidized loans after Congress failed to reach a compromise to address student loan debt. In the last year, more than 460,000 Texans took out the kind of loan subject to the hike.

Unless Congress comes to an agreement to restore rates to the previous 3.4 percent, students taking out loans in the fall will have to pay them back at the significantly higher rate. Officials say this will tack on an additional $1,000 to the average borrower’s bill.

The subsidized loan increase is fueling worry among higher education officials that some Texas students may decide college is too expensive and choose not to attend. It has also sparked frustration for schools that have endeavored to keep tuition from increasing in light of state budget cuts. 

“The rate increase is particularly frustrating because it more than wipes out everything UT-Austin has been doing to keep itself affordable for financially needy students,” said Thomas Melecki, director of UT’s financial aid office. “But now, Congress allowed an interest rate change to go into effect in a single day that will cost our financially needy students more than twice the amount our tuition rose over five years.” 

There is currently no plan to offer alternative financial aid options for students in light of the increase, but officials say there are some things students can do to reduce the impact of the rate increase.

With the average tuition at the state’s public universities rising every year — statewide tuition on average was $1,934 per semester in 2003 and $3,711 in 2012 — financial aid plays a large role in allowing Texas students to pursue a college degree.

While Texas does have state programs that provide scholarships, grants and loans, about 70 percent of financial aid came from the federal government in 2011.

Out of nearly $9.1 billion in aid awarded to students in 2011, roughly $4.5 billion of it was through federal loan programs, according to the Texas Higher Education Coordinating Board.

Many students choose federal loans over private loans because the federal government features fixed rates, puts students on an income-based repayment plan and offers postponement options.

Students who choose to take out a subsidized or unsubsidized loan are allowed to borrow up to $3,500 their first year, $4,500 their second year and $5,500 their third year and beyond.

Dominic Chavez, spokesman for the coordinating board, the agency that oversees the state’s higher education institutions, said the board is concerned with anything that threatens affordability in higher education.

“This increase may not discourage students currently enrolled because they are already invested in their education,” Chavez said. “However, longer term, we are certainly concerned about fueling the perception that the cost of higher education is a barrier for students or not worth the investment.”

Even though students cannot directly control changes in state or federal policy, Chavez said they could control the ultimate cost of their education by taking only those credits required for their degree. In 2012, Chavez said, students statewide pursuing an undergraduate degree finished with 142 credits, but only 120 credits are required for a typical bachelor’s degree.

The coordinating board also encourages students looking to cut costs to consider starting off in a community college, which is less expensive, as well as taking college credit courses in high school and deciding on a major as early as possible.

Six years after he took out his first loan as a freshman, Ramirez has racked up about $50,000 in student loan debt, including a chunk in federal subsidized loans. This fall, Ramirez said he will take out loans, including federal subsidized loans, once more.

“I’m going to have to be paying back loans for the rest of my life, so any little bit of money they’re tacking onto it isn’t helping me at all,” Ramirez said.