The average student-loan borrower will pay an extra $2,600 over a decade if the interest rate on some federal student loans doubles on July 1, according to a report released on Thursday by Democrats on Congress's Joint Economic Committee.
The calculation, based on U.S. Department of Education budget data, clarifies the costs to students as the debate over whether Congress should allow the interest rate to double goes down to the wire. Politicians and pundits have disagreed on just how much more students would pay if interest rates were allowed to jump from 3.4 percent to 6.8 percent, with some reports interpreting President Obama as saying that borrowers would pay as much as $1,000 more annually.
The Joint Economic Committee's report, "The Causes and Consequences of Student-Loan Debt," says students who borrow the maximum amount would pay $4,500 more in interest over the life of each loan. The report also echoes previous studies finding that the nearly $1-trillion in student-loan debt over all could hamper investments in cars and homes.
Interest rates on subsidized Stafford loans will rise unless the divided Congress passes legislation to either extend the current rate or set a new formula. A bipartisan group of senators is reportedly working out a proposal for a three-tiered, market-based interest rate.
The Joint Economic Committee's report, written by the panel's Democratic members, also suggests several ways to avert the student-loan stalemate and ease graduates' debt burdens.
First, the report backs Democrats' effort to keep interest rates at their current levels, hoping to buy time to forge a long-term solution. It also proposes forgiving loan payments for graduates who take lower-paying, public-service jobs at organizations like the Peace Corps or nonprofit groups.
The report also suggests modifying federal repayment plans, reducing the number of years before the government would forgive loan debts.