Even if interest rates on some student loans double as scheduled on Monday, there's no cause for panic.
First, the higher rates won't affect any existing loans. When the rate goes up, it will affect only new, subsidized loans under the Federal Direct Loan Program, also known as Stafford loans.
Second, the new rate's effect on a graduate's monthly repayment won't be so much that it's a "lifestyle-changer," said Brian Lindeman, director of financial aid for Macalester College.
The rate for new subsidized loans will rise from 3.4 percent to 6.8 percent, which is the rate already applied to unsubsidized Stafford loans.
"For a student who's just beginning at Macalester this fall, and will graduate and start repaying their loans in late 2017," said Lindeman, "if they take the full Stafford loan and qualify for the subsidy every year: When they repay their loan, they'll be paying about $32 more per month than they would if the loans were at 3.4 percent."
"It adds up to just under $4,000 if the student takes the full 10 years to repay the loan," he said.
Matthew Chingos, a fellow at the Brookings Institution who follows education policy, agreed.
"From the student perspective, the difference between the cheapest and most expensive proposals comes out to $33 a month," he said. "The problem isn't that the rate is one thing or another. The problem is the uncertainty around this, and all the negative publicity around this program."
Chingos criticized Congress, and particularly Senate Democrats, for failing to enact a remedy to that uncertainty.
"The right solution now is not to kick the can down the road one more year again, which unfortunately is what the Democratic leadership in the Senate wants to do," he said. "A year ago it was a sensible thing to do. It was in the middle of a presidential campaign; there weren't any serious long-term solutions on the table. Now we have several serious long-term solutions, some of which have bipartisan support. So I think it's a huge mistake to kick the can down the road once again."
Lindeman explained the difference between subsidized and unsubsidized Stafford loans. The subsidized loans, he said, are available to both graduate students and undergraduates, and their rate has been fixed at 6.8 percent since 2006. Those loans do not change on Monday.
"The issue at hand is about subsidized federal direct loans," he said. "Those are loans that are available only to undergraduates who qualify by showing need for financial aid. Another feature of those loans is that there's no interest that accrues while the student is in school."
The subsidized loan, Lindeman said, is always "the first, best choice for a student, if they qualify for it." Most students take a mix of both subsidized and unsubsidized loans.
Chingos said a more sensible system would reflect the market.
"There's a bipartisan consensus that we ought to get Congress out of the business of setting these rates, just pegging them to 6.8 or 3.4 percent or whatever, and instead tie the rates to market interest rates — say, the 10-year Treasury rate," he said. "President Obama proposed something like that in his budget. House Republicans proposed something like that, and actually passed a bill.
"In the Senate, there were a couple of Democrats who made a proposal along those lines, and recently, just this past week, was the first bipartisan proposal to come out ... but more or less immediately, the Democratic leadership in the Senate came out and said, 'No, no, no, we don't want to do this. We want to just wait another year, extend it one more year, and then we'll deal with it next year.' But in my view that's a big mistake."
"You have to remember," he said, "when Congress put in place the 6.8 percent [rate for unsubsidized loans], back in '06-07, people rejoiced. That was a great deal, because of what the market looked like then. The problem is, when you let Congress peg a specific rate, and then market rates move around that, those two things get very out of whack."
LEARN MORE ABOUT STUDENT LOAN DEBT:
• A Proposed Fix for High Student Loan Interest Rates
"Amid the growing attention to student debt, Senator Sherrod Brown (D-Ohio) has a new bill that aims to help some of those existing borrowers who are stuck in loans with high rates. Brown's bill tries to build a refinancing market for private student loans, which make up about 15 percent of the $1.1 trillion in outstanding student debt." (Bloomberg Businessweek)
• It's Well Past Time To Scrap The Federal Student Loan Program
"The federal government should get out of the student loan business, including government guarantees of student loans as well as direct lending. Proposals to further incentivize students to incur federal debt to finance their post-secondary education through subsidized interest rates, deferred payments, or loan forgiveness are misguided." (Forbes)
• Student loan debate: Take the focus off interest rates
"The remedy is income-based repayment. Put simply, that means that a graduate is obligated to commit a given percentage of his or her annual income to pay down the loan, like a tithe. If that sounds radical, it shouldn't, because the option has been available to most borrowers since 2007, and was even enhanced last year." (Los Angeles Times)