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A talking point at the heart of the debate in Washington, D.C., over whether to extend a low student loan interest rate has made its way to St. Paul.

In a recent press release issued by the DFL, party chair Ken Martin said that if Congress doesn't renew the lower rate by July, many students could see their student loan costs increase.

"If Congress does nothing, interest rates for new subsidized student loans are set to double from 3.4 percent to 6.8 percent on July 1, 

causing at least 7 million students to be hit with an average of more than $1,000 in additional costs over the life of that loan

Martin and the White House, which came up with the talking point, mislead on how the change would affect students.

Congress has until July to extend the federal Stafford subsidized student loan interest rate for another year. If lawmakers don't, the rate will jump from 3.4 percent to 6.8 percent for undergraduate borrowers. Extending the lower rate would cost the government $6 billion.

In an effort to woo young voters and pressure Congress to act, President Obama has made the higher interest rate an issue. The White House has even given its campaign a Twitter hashtag: #DontDoubleMyRate.

Martin's claim stems from data on the White House website. A White House spokeswoman could not provide sourcing for the first part of Martin's claim that at least 7 million students would be hit by the interest rate increase.

But data collected by the College Board supports this part of Martin's claim; roughly 7.7 million students took advantage of the loan in 2010-11 school year.

Martin also said that students will pay a rough average of $1,000 more over the life of the loan.

The White House is assuming that the average Stafford subsidized loan is $4,200 and takes an average of 12 years to pay off. With a 6.8 percent interest rate, students would pay roughly $1,000 in additional interest.

But the White House is making some unrealistic assumptions - even according to the president's own fiscal year 2013 budget, which pegs the average Stafford loan at roughly $3,400 and assumes the standard pay-off period of 10 years. Using the Department of Education's loan repayment calculator, a higher interest rate of 6.8 percent would cost students an average of $524 more.

The Congressional Budget Office estimates that average Stafford loan at roughly $3,000 annually well into the future. In this case, students would pay only $384 more in interest.

Martin's talking point, which originated with the White House, is correct that "at least 7 million students" will be hit with more expensive loans if Congress fails to extend the lower interest rate.

But it wouldn't cost students an average of $1,000 more.

Taking out Stafford Loans to help pay for college?: You could owe an extra $1,000 unless Congress takes action soon

Interest Rate Change for New Direct Subsidized Loans

CBO March 2012 Baseline Projections for the Student Loan and Pell Grant Programs

Student Loan Debt Exceeds One Trillion Dollars

Standard, extended, and graduated repayment calculator

 Federal Credit Supplement Budget of the U.S. Government

Interview, Terry Hartle, Senior Vice President, Division of Government and Public Affairs, April 26, 2012

Interview, Jason Delisle, Jason Delisle, Director, Federal Education Budget Project, New America Foundation, April 27, 2012

E-mail exchange, Caroline Hughes, White House spokeswoman, April 26, 2012

E-mail exchange, Kate Monson, DFL spokeswoman, April 26, 2012

E-mail exchange, Johanna Diaz, spokeswoman for the Project on Student Debt, April 27, 2012

Politics and Government News

Capitol View®

Catharine Richert

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PoliGraph: DFL claim on student loans is inflated

PoliGraph: DFL claim on student loans is inflated

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