Financial staff at three local colleges do not think student loan interest hikes would significantly change student behavior.
Interest rates on new subsidized Stafford loans are set to double, from 3.4 percent to 6.8 percent, on July 1. This would mean higher payments from students.
Lawmakers have been divided on how to approach this deadline, but a bipartisan compromise took shape in the Senate Wednesday, which suggests tying rates to financial markets. This would mean rate variations every year, but once a loan was received, a student's interest rate would be set at that rate, according to the Associated Press.
Nichol Westendorf, director of financial aid at Bethany College, thinks tying loan interest rates to financial markets is the best approach.
“The market, when it's not intervened with, I think is really fair and a much better pulse of what's happening in the country,” she said. “If we tie it to the market, it would be lower, and as it slowly rebounds, it would continue to grow as the economy grows and it would make much more sense to follow that. A 3.4 interest rate is too low for the market, but it certainly doesn't need to be as high as 6.8 (percent).”
Regardless of the decisions in Washington, however, Westendof does not expect this to change student behavior for the two-thirds of Bethany students who use subsidized Stafford loans.
“I've worked in financial aid for quite some time, and the main thing about student loans is the people who have to take them out will take it out regardless,” she said. “They don't understand what an interest rate means. We do our best to educate them, but when you start telling them those numbers, they don't understand what it means in the long term.”
Mike Reimer, director of financial aid for Central Christian College, said about 50 percent of their students are eligible for subsidized Stafford loans. He predicts the majority will not change their behavior if interest rates increase.
“I don't think they think about it when they borrow the loans,” he said. “Students will still borrow. I think they'll react to it based on the rates when they start their payment.”
As a taxpayer and one who had borrowed money of his own, Reimer does not think a 6.8 interest rate is worrisome.
“It's taxpayer money. I want the students to have good loans, but we're all paying taxes,” he said. “I think 3.4 percent is overkill, but 6.8 is a little high.”
Reimer thinks the rates are a matter of perspective.
“In today's world, it looks expensive. A 6.8 (percent interest rate) before the recession looked like a good deal,” he said. “I think it's a tough situation in our government to have to balance the budget.
Page 2 of 2 - There's got to be give and take from the government and the students.”
Brenda Krehbiel, director of financial aid at McPherson College, said roughly 85 percent of their students take out loans of some kind. She also does not think it will decrease the amount of students who utilize them.
“I don't think students are thinking about paying loans back and what that means,” she said. “I don't think they've taken the time to think about what degree they're in, how much they will make and their payments. There's going to be those students that are aware and realize the impact, but I think the majority of them don't pay attention to that.”
Krehbiel didn’t anticipate lawmakers will prevent the loan interest rate spikes when asked last week.
“It's not a good deal, that's for sure,” she said. “Anytime interest rates increase it's not a good deal for the consumer, but I think it could be worse. When I compare it to what I had to pay in student loans, 6.8 percent is still really good.”
Contact Jenae Pauls at firstname.lastname@example.org and follow her on Twitter @PaulsSentinel.