The law will fix student loan interest rates to the 10-year U.S. Treasury note instead of using the current arbitrary formula. It will also establish interest rate ceilings and lock interest rates for the loan’s lifetime. In the process, interest rates will be slashed for the upcoming 2013-14 academic year, with undergraduate rates reduced from 6.8 percent to 3.86 percent.

The law will also retroactively apply to loans taken out after July 1, when interest rates on federal Stafford loans doubled after Congress failed to prevent the expiration of subsidies. Stafford loan interest rates subsequently doubled from 3.4 percent to 6.8 percent. The legislation is projected to provide $25 billion in debt relief for students in the next five years.

During the past month, legislators from both parties have tried to address both short-term problems stemming from the expiration of the subsidies and long-term problems such as the national trend of increasing student debt and its effects on the economy.

The final bill passed focuses mainly on the short-term problem of interest rates, and some leaders of the U.S. House of Representatives have questioned the long-term effectiveness of this solution.

“The bill helps reduce costs to students and families, but it does not solve the long-term student debt crisis,” said bill proponent Rep. George Miller, D-Calif., in a press release.

UC officials and students also worry that loan debt may become unsustainable when economic conditions improve and Treasury bill rates start to increase.

“In the long term, accounting for inflation, loans will become more expensive for prospective Berkeley students,” said Rachelle Feldman, director of the UC Berkeley Financial Aid and Scholarships Office.

She suggested variable interest-rate loans and income-sensitive repayment programs as changes to the student aid program, as they would better adapt to changing economic conditions.

Alex Lee, a senior at UC Berkeley, has relied heavily on federal Stafford loans since he started college and will continue to do so. He said that he has no way of paying for college other than loans.

“I’m essentially at the mercy of the student loan system,” Lee said. “Once I get out, I’m pretty much screwed.”

Undergraduate loans for the coming year will drop to 3.86 percent, and graduate student rates will be 5.41 percent. PLUS loans, which are offered to graduate students and the parents of undergraduates, will drop to 6.41 percent. All of these rates will be lower than the current fixed rates of 6.8 percent for Stafford loans and 7.9 percent for PLUS loans.

The bill will also establish rate caps to prevent student loans from becoming too expensive — 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for PLUS loans.

Contact Dennis Vidal at dvidal@dailycal.org.

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The increase in interest rates from 3.4 to 6.8 percent will affect about 40 percent of UC Berkeley students who take out loans each year. In recent weeks, Democrats and Republicans in both houses of Congress have tried to pass proposals that would extend the subsidies or reform the federal student loans system, but disagreements over the government deficit and proposed reforms prevented a deal.

A proposal by Sen. Elizabeth Warren would fix the rate of subsidized loans to the rate given to major banks by the Federal Reserve at 0.75 percent. Another plan by House Republicans would tie student loan rates to the 10-year U.S. Treasury note, subject to market fluctuations but capped at 8.5 percent.

Rep. John Garamendi, D-Fairfield, a member of the House Committee on Education and the Workforce is outraged by the failure of Congress to pass effective legislation and attributes much of the inaction to the broader fight in the capitol over the deficit.

“You’ve got a large amount of money, a large number of loans to subsidize the interest rate and a great deal of conflict whether it ought to be done at all,” Garamendi said. “The question arises as to where the money should come from, so you’ve got the deficit issue.”

Rachelle Feldman, director of the UC Berkeley Financial Aid and Scholarship Office, said that some of the proposals put forth may have been more detrimental to students in the long run than the current expiration of the subsidy.

“We want student interest rates low in any permanent solution to the current problem,” Feldman said. “What we don’t want to see is for them to keep the interest rate on subsidized loans low at the expense of any other student-aid program.”

Currently, students who take out loans at UC Berkeley have an average of about $17,000 in debt upon graduation, compared to about $28,000 nationally. Because the subsidized loans have now doubled, Feldman estimates that the average borrower at UC Berkeley would see a difference in his or her monthly payment of about $15 a month over a 10-year repayment period, which amounts to about an extra $1,800 over 10 years.

The expiration of the Stafford subsidized loans will not affect the Stafford unsubsidized loans or the Stafford PLUS loans that graduate students and the families of students can take out that are offered by the financial aid department.

Brian McFadden, a junior at UC Berkeley, plans on taking out all Stafford loans offered to him for the coming year and until he graduates despite the rate increase. When asked about the increase in the interest rate, McFadden was quick to admit the difficulty of grasping the long-term consequences of the interest rate raise.

“People like me can’t think about it, since we have no experience of what it’s like after college being hit with all these debts,” McFadden said. “It’s just a number, an abstraction.”

But McFadden said he is cynical about the politics that surround the increase.

“The sad thing is that I am not surprised — this is business as usual for the country.”

Contact Chase Schweitzer at cschweitzer@dailycal.org and follow him on Twitter @ChaseSchweitz.

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Feldman — who became the assistant director of fiscal management in 2000 and was appointed associate director of financial aid in 2008 — helped implement the Middle Class Access Plan, which Chancellor Robert Birgeneau announced in December. The program offers financial aid to middle-income students who are disproportionately impacted by tuition hikes, yet are not eligible for financial aid.

According to the email, Feldman also aided in implementing the MyFinAid online application, which tracks students financial aid in real time.

The campus has begun a search for a new director of undergraduate admissions and registrar, according to the email.

-Sam Buckland

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