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.

The post Obama signs student loan reform, ties interest rates to Treasury note appeared first on The Daily Californian.

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.

The post Federal student loan rates double as deficit fight continues appeared first on The Daily Californian.

Due to concerns of the Democratic and Republican parties regarding how to pay off the $6 billion cost of the Stop the Rate Hike Act of 2012, the bill had difficulty making its way through the Senate.

Under the current arrangement, the $6 billion would come from increasing the fees paid by employers to insure their pensions to employees, limiting federal subsidies of Stafford loans for undergraduates to six years and changing how companies calculate their pension liabilities, according to the Center for American Progress.

“I’m very pleased that they were able to reach this agreement. I’m sure the millions of students with these loans are pleased too. Hopefully, the House passes this (deal),” said campus CalPIRG Treasurer Spencer Pritchard, who has Stafford loans. “It’s good that (Congress) is working to make higher education cheaper and to help people like me who need to take out loans.”

The university also fully supports extension of the current interest rates on Stafford student loans, according to UC spokesperson Dianne Klein.

“For current UC students, they will pay their loans back based on the rate that was in place when they signed for the loan,” Klein said in an email. “If Congress does not act, the rate for current (and entering) UC students who take out new subsidized Stafford Student Loans on or after July 1st will be 6.8%.”

Between 2010-2011, over 7,900 UC Berkeley students like Pritchard had taken out Stafford loans as well, according to campus spokesperson Janet Gilmore. If the bill is passed, students with the loans will save an average of $1,206 per loan, according to the White House website.

Pritchard said this is a hard-fought victory for CalPIRG, a campus organization that held campus events, spoke to national reporters, attended press conferences and even participated in a conference call with President Barack Obama in their campaign to keep interest rates low.

“CalPIRG was the leading group on the ground concerning the issue of Stafford loan interest rates. We have held events as far back as February on this issue where we got petitions and raised awareness on this issue,” Pritchard said. “This agreement is positive for CalPIRG. Our goal of renewing the interest rates was met.”

However, according to the National Association of Student Financial Aid Administrators, student loans could still become more expensive for some students even if the deal is passed due to Congress’ recent elimination of the in-school interest subsidy for graduate and professional students. The new measure will take effect starting Sunday.

Pritchard said that CalPIRG does not support the decision to eliminate the interest subsidy and will continue to focus on affordable education policies at local, state and federal levels.

“We try to push policies that increase financial aid and promote affordable education,” he said. “We are not supportive of any policy that makes education less affordable.”

The post UC Berkeley community supports deal to keep student loan rates low appeared first on The Daily Californian.

In the months leading up to the expiration, Democrat and Republican leaders largely agreed on the necessity of maintaining the current 3.4 percent interest rate, but differed on how to generate the $6 billion in subsidies needed to maintain the reduced interest rates to keep rates from doubling for more than 7 million students with Stafford loans.

President Barack Obama and college students around the country have campaigned to push for congressional action to stop the increase.

“We’re pleased that the Senate has reached a deal to keep rates low and continue offering hard-working students a fair shot at an affordable education,”  reads a statement issued by the White House Office of the Press Secretary on Tuesday. “Higher education has never been more important to getting a good job.”

If Congress does not pass the Stop the Rate Hike Act of 2012 by the end of the month, rates will double to 6.8 percent for students with Stafford loans. The bill still needs to be voted on by Congress by the July 1 deadline.

“We hope that Congress will complete the legislative process and send a bill to the President as soon as possible,” the statement reads.

Adelyn Baxter is the news editor.

The post U.S. Senate reaches deal to keep student loan rates low appeared first on The Daily Californian.

According to Obama, a cut in federal Stafford loan interest rates that Congress passed in 2007 is scheduled to expire July 1. If Congress does not pass the Stop the Rate Hike Act of 2012, which maintains the current 3.4 percent interest rate, by the end of the month, rates will double to 6.8 percent for the more than 7 million students with Stafford loans.

In April, Congress came to a gridlock between two different bills that would generate the $6 billion in subsidies needed to maintain the reduced interest rates — Democrats favored a bill that would generate money from cutting subsidies for oil companies, while Republicans favored a bill that would generate money from repealing a program from the country’s new health care plan.

Obama has been visiting college campuses to call on students to email, call and tweet lawmakers into action. He started a #DontDoubleMyRate Twitter campaign, through which people have been mobilizing to tell Congress to keep student interest rates reduced.

Earlier this month while visiting University of Nevada, Obama told students low student loan interest rates should be Congress’s priority in maintaining affordable higher education.

“The number one thing Congress should do for you … is to stop interest rates on student loans from doubling at the end of the month,” Obama said in his speech. “The clock is running out. You know, in today’s economy, higher education can’t be a luxury. It’s an economic necessity. Everybody should be able to afford it.”

UC spokesperson Dianne Klein said in an email that the university is also doing its part to keep the interest rates low.

According to Klein, more than 76,300 UC undergraduates received subsidized Stafford loans in 2010-11, and if the bill is passed, these estimated student borrowers could save approximately $1,000.

Klein said UC President Mark Yudof has written letters regarding the bill to Obama, Senator Dianne Feinstein, D-Calif. and all 55 members of the California congressional delegation.

“It is critically important that the federal government work together to keep borrowing costs low for students and their families,” Yudof said in the letter to Feinstein. “I urge you to take action to ensure that the interest rate on subsidized Stafford student loans does not double from 3.4 to 6.8 percent on July 1, 2012.”

Derek Zhou, president of Berkeley College Republicans, said the organization supports the bipartisan effort to extend current loan interest rates and gave his perspective as a UC Berkeley student.

“On behalf of myself, I think spending in education is certainly a good thing — the question is whether the money is always used effectively,” Zhou said.

Campus CALPIRG Treasurer Spencer Pritchard said the organization has been advocating for continued low interest rates as well.

Pritchard said the organization held a campus event on Valentine’s Day asking Congress members not to break its heart by doubling student loan interest rates. Since then the organization has sent out hundreds of student petitions and been to press conferences with Congresswoman Barbara Lee,  D-Oakland and Senator Barbara Boxer, D-Calif., to put pressure on Congress.

“Personally, I have these loans, and (the increase) will make it harder for me to pay off my loans,” Pritchard said. “It could affect my debt and make it harder for me to start other things in the future like buy a house … I think all students understand that you don’t want to be in a bind.”

The post Obama, students push Congress to prevent student loan interest rate increase appeared first on The Daily Californian.

While the issue has divided both major political parties, the possibility of an increase from the current 3.4 percent rate has prompted students to protest against student loan debt as politicians have begun to recognize it as a hot button issue.

The U.S. House of Representatives’ Friday passage of a $5.9 million Republican bill to extend the current rate on Stafford loans already faces veto threats from President Barack Obama, and it appears unlikely that the parties will pass extensions without a compromise.

But students hoping to nudge politicians into making a decision about the issue have organized protests against student loan debt in response to the possibility of a rate increase. Wednesday’s $1 Trillion Day of Action — named after the aggregate amount of loan debt accrued by college students —  saw students from around the country gather to protest the issue, including students from UC Santa Cruz.

“Student debt is honestly completely out of control in this country,” said UC Santa Cruz student Maria Jennings, who participated in the Wednesday protests, in an email. “The fact that it’s exceeded one trillion dollars is just another slap in the face to students who are racking up these unbelievably high amounts of debt to get an education.”

Jennings said the campus’ Student Labor Action Project — an organization based around challenging institutions that perpetuate economic and social injustice — visualized the massive scope of the issue by putting together a 250 foot long paper thermometer illustrating the debt’s size.

In April, the UC Berkeley chapter of CALPIRG took similar action by participating in a national day of action against student loan debt in the hopes of bringing the issue to the attention of California politicians.

Now, recognizing the massive effect the rate increase would have on students, politicians at the national level have spoken out strongly in favor of extending the current rate. Obama appeared on “Late Night with Jimmy Fallon” Tuesday night to perform a “slow jam” with the television host urging the American public to back the rate extension.

But Republican presidential frontrunner Mitt Romney’s campaign contends that Obama’s focus on the issue has not translated into what college students really want — jobs.

“With one of every two recent college graduates unemployed or underemployed, President Obama won’t be able to skate by on empty rhetoric and campaign promises — he’ll have to run on his failed record of high unemployment, skyrocketing gas prices, and mountains of new debt,” said Romney spokesperson Amanda Henneberg in a press release.

Still, the issue currently remains politically deadlocked. On May 8, U.S. Senate Democrats will vote on legislation that would extend the current rate by closing Medicare tax loopholes for Americans making over $250,000 annually.

Damian Ortellado is the lead higher education reporter.

The post Student loan debate hits national spotlight appeared first on The Daily Californian.

The theme of the day of action was “Deflate your Rate,” referring to the ballooning interest rate that subsidized Stafford loans could see this July. At the event, CALPIRG took pictures of students holding balloons that read “Deflate the Rate,” symbolizing the increase in interest rates that subsidized Stafford loans face.

“It is metaphorical way of saying that college should be more affordable and that Congress can do something about it,” said  CALPIRG member and co-event coordinator Kate Uyeda.

Offered to students who display financial assistance to fund their education, Stafford loans are fixed rate federal loans offered to students by the federal government. Currently, subsidized Stafford loans have a fixed interest rate of 3.4 percent — however, this could double in July if existing legislation is not renewed.

According to co-event coordinator and CALPIRG member Sofie Karasek, Congresswoman Barbara Lee has already signed on to oppose the interest rate hike. But renewing the legislation will need as much support as it can get.

The event hoped to catch the attention of U.S. Senator Dianne Feinstein, D-Calif., and Senator Barbara Boxer, D-Calif., aiming to show leaders in Washington, D.C. that students are aware of and care about their finances when it comes to education, Karasek said.

Since 2007, federal legislation has cut the interest rate of subsidized Stafford loans nearly in half, from 6.8 percent to 3.4 percent, over the course of four years. However, the law is set to expire on July 1, and if it does, the interest rates will be 6.8 percent once again, according to Uyeda.

Through this event, CALPIRG hopes to emphasize that college expenses are increasing and becoming more difficult to finance.

“We want Congress to realize that they can deflate ballooning interest rates and make college affordable again,” Uyeda said.

Other CALPIRG chapters across the country also held days of action on their campuses asking their legislators not to let the interest rate double in July, according to Karasek.

The post CalPIRG holds event to draw attention to increasing student loan interest rates appeared first on The Daily Californian.

The petition, titled “Tell Sallie Mae: Stop the Unemployment Penalty Petition”, criticizes Sallie Mae’s practice of imposing $50 forbearance fees every three months on loans for which payments have been temporarily suspended by graduates facing financial difficulty.

Councilmember Kriss Worthington’s recommendation states that because the city of Berkeley encompasses UC Berkeley, “it is imperative that we (the city) take a leadership role and request Sallie Mae to drop the forbearance fee.”

Before Sallie Mae received the petition, the paid penalties were not refunded to the borrower or put toward repaying the borrower’s loan, as interest charges continued to accumulate.  The petition had about 76,000 signatures when petition author Stefanie Gray submitted it to Sallie Mae’s Washington DC office on Feb. 2.

“We have been giving careful consideration to our policy for some time, and we are changing it to apply the good-faith payment to the customers’ balance after they resume a track record of on-time payments,” said Sallie Mae spokesperson Patricia Christel in an email.

But according to Gray, who gathered support for the petition by posting it on Change.org, the change is not enough.

“This is merely a partial victory,” Gray said. “Sallie Mae needs to drop the fee altogether once and for all — no stipulations, and no BS.”

Gray was enthusiastic about the potential support from Berkeley and encouraged the city to step forward on this issue.

“This is fantastic news, and I’m overjoyed to hear it,” Gray said. “So far, I haven’t heard of any other towns that have joined the effort, but I hope that Berkeley will set a precedent for other towns to join in, in solidarity.”

Former CalPIRG State Student Board Chair and UC Berkeley senior Lucas Zucker also expressed enthusiasm for the recommendation.

“I think it’s always great to see when the city is standing up for students and voicing their opinions about the increasing burden of student loans,” Zucker said.

Ultimately, Worthington said he hopes the city’s actions will grab Sallie Mae’s attention as well as the attention of other cities.

“The fact that we are a city government grabs the eye of the bureaucracy,” Worthington said. “Sometimes once we do it … we create a little bit of momentum.”

As of Thursday evening, the petition had gathered about 156,500 signatures online.

The recommendation’s attached letter is addressed to Sallie Mae CEO Albert Lord.

The post City Council to vote on letter supporting petition regarding forbearance fees appeared first on The Daily Californian.

The Pell Grant is important for a large number of students at the University of California, where approximately 40 percent of undergraduate students are eligible to receive the award. The preservation of the grant is crucial as an undergraduate degree is becoming less attainable due to financial restraints. Thus its survival is a victory, although a minor one, for students. However, it is difficult to feel relief because the grant was saved at the cost of eliminating the interest subsidy for the Stafford graduate loan program.

Unfortunately, the political circumstances surrounding the debt deal — namely federal cuts without the option of increased revenue — made it clear that the tiers of higher education would have to be prioritized. In this case, the priority was rightly given to undergraduate education, which is becoming necessary even for the lowest paying skilled jobs.

Though an undergraduate education is necessary, it is becoming increasingly obvious that it alone cannot grow the American economy. In order to remain competitive in the future, graduate degrees are becoming more necessary. However, the national government has joined California’s legislature in disinvesting in that very future. As the prestige of an undergraduate degree wanes, students look to graduate degrees to remain competitive in the globalized marketplace. And since graduate and professional schools are generally more expensive than an undergraduate education, the elimination of the interest subsidy is undoubtedly a setback for the American economy and the country’s ability to remain competitive.

For any level of government, education is a unique expenditure. It is difficult to imagine a time when cutting education amounts to a long-term, responsible decision. While it certainly saves money in the here and now, cutting education means dismantling the creative, productive and competitive potential of America.

The post Bitter compromise appeared first on The Daily Californian.

Derek Remsburg/Staff

Graduate student Megan Wachspress will begin her first year at Yale Law School next fall with a load of textbooks, materials and the added burden of increased interest payments for the federal student loans she has taken out to pay for her education.

With the interest subsidy for the federally subsidized Stafford graduate loan program cut as a part of the federal government’s recent decision to raise the national debt ceiling, Wachspress and some of her fellow graduate and professional students will face continued struggles to fund their education.

“It’s the government saying ‘congratulations, you are going to be spending up to $10,000 to borrow money to complete an education,’” Wachspress, who also serves as a campus recording secretary of the United Auto Workers Local 2865 — a union which represents nearly 12,000 graduate student instructors, readers and tutors in the UC — said. “It is not just a cut in funding — it’s asking graduate students to pay more fees to the U.S. government by increasing interest payments.”

In addition to the elimination of interest subsidies that will take effect in July 2012, the bill — the Budget Control Act of 2011 — also cuts a credit given to students who make loan payments on time.

“One of the frustrating things for me was that this wasn’t done in consideration as to how we fund higher education for grad students,” said David Louk, a graduate student at UC Berkeley. “This was done as a last-minute negotiation to cut a deal in Washington.”

At the cost of eliminating the interest subsidy for graduate students, an additional $17 billion was given to the Pell Grant program, which provides undergraduate students with federal financial aid, in order to maintain its maximum award amount of $5,550. Louk said the two do not have to be mutually exclusive.

“The way it was framed by Republicans and Democrats in the House and Senate … was that they would cover the increasing burden of Pell Grants but eliminate payback that graduate students get if they repay loans for the first couple months,” he said. “They were primarily concerned about Pell Grants and did not push back against the cutting of subsidized interest for grad students at the risk of losing Pell Grants.”

To make up for the fact that graduate students will have to choose between paying interest on their loans or letting it accumulate while they are still in school, the amount that students can borrow in federal Stafford loans per year will be raised, according to an analysis by the Congressional Budget Office.

Charlie Eaton, a UC Berkeley graduate student and financial secretary for the union, said the cuts only make graduate students throughout the UC more financially insecure. He added that the union is speaking with members systemwide on how they will respond to this issue, although no plans have been finalized yet.

“It makes me angry because we are seeing graduate students and working people pay for the budget crisis that banks and corporations caused,” Eaton said. “We should be making those folks pay to expand UC and provide equity to everybody.”

According to Carolyn Henrich, legislative director for the UC’s Federal Government Relations office in Washington, D.C., preliminary data for the 2010-2011 school year so far show that 16,561 graduate students borrowed $123.6 million in subsidized Stafford loans.

“The interest rate is going to go up on Stafford loans — it’s now 3.4 percent, but it will go up to 6.8 percent,” Henrich said. “So (graduate students) will be paying more for the cost of loans.”

Daniel Simmons, chair of the UC systemwide Academic Senate, said the recent decision may have been facilitated by the federal government, but some of the blame lies with the state as well.

“The university tries to do its best in helping low-income students in making higher education available even though the state isn’t doing much to help us out,” Simmons said. “It’s an inevitability — a loss of any program that mitigates funding of education makes it harder and harder for students to pay.”

Regardless of where the blame lies, Henrich said she is not optimistic for the future because she feels there will be more cuts to financial aid in the midst of competing political interests in Washington, D.C.

“There will be more cuts to student aid,” she said. “The economic situation is pretty grim, but we are hopeful that the economy will turn around and the federal government will keep education and research going — one of UC’s overall priorities.”

Correction(s):
A previous version of this article incorrectly stated that graduate student Megan Wachspress will be starting at the UC Berkeley School of Law in fall 2011. In fact, Wachspress will be starting at Yale Law School in fall 2012.

The post Graduate students may face added financial burden in debt ceiling deal appeared first on The Daily Californian.