Student loan rates may not have doubled this year, but they could increase as a result of President Barack Obama tying interest rates for government loans to the 10-year Treasury note.
A rising rate on the Treasury note will mean higher rates for students in the future, however rates are locked in for the life of the loan on the day they are taken out.
Michael Hicks, director of the Center for Business and Economic Research, said while the measure did bring down the interest rate in the short term, only time will tell where it will go.
“Interest rates are at a historic low; they only have one way to go,” he said, “I think it’s very possible the rates could go way up.”
Nearly two weeks ago, Obama signed legislation that locked interest rates for government subsidized and unsubsidized loans at 3.86 percent for undergraduates and government unsubsidized loans at 5.41 percent for graduate students.
This saved students roughly $3,000 over the life of the loan over what they could have been if the rates had remained doubled as they were in early July, Hicks said.
The measure also set a cap on future undergraduate loan rates at 8.25 percent and 9.5 percent for graduate students.
Tyler Wilson, a freshman predental major, said he appreciates the lower rates.
“They should have just set it [stagnant] though,” Wilson said.
Although rising rates may frighten some who depend on federal loans to make college a possibility, Hicks said they may not need to panic too much.
“It seems like a very urgent matter for students but I’m not sure how much it really is,” he said.
Hicks said no matter how you look at it, investing in college — even if the rates skyrocket in the future — they are still cheaper than a credit card loan and with an annual salary difference of nearly a million dollars over a lifetime for college graduates make the investment more than worth it.
Hicks did say however, that when interest rates do begin to rise, nonessential purchases are always the first to go.
“You have got to ask yourself, ‘What are students consuming with a student loan?’” he said.
Computer equipment, Internet, food and clothing are all items that may be the first to be downsized or outright cut from a budget if and when loan rates rise.
Brooke Sturgell, a junior visual communication major, said she has followed the student loan issue ever since she received an email warning of the impending rate doubling in early July.
She said she worked at a factory during the summer to work to pay off some of her college debt and became furious when she found out all of her work could have been made “null” if Congress and the president had failed to act.
“I signed a petition and posted it to Twitter,” Sturgell said. “I can ask people about it and they don’t even know, but I care because I know that I have to pay the bill.”
