An estimated 1.5 million black students could see interest on their student loans increase unless Congress and President Obama reach an agreement to keep current rates in place.
Obama will give speeches at the University of North Carolina and the University of Colorado Tuesday, pushing his proposal to prevent a scheduled hike in rates for subsidized Stafford Loans. In 2007, Congress and President Bush agreed to gradually reduce the interest rates of these loans from 6.8 to 3.4 percent, but that provision expires in July, and new loans would be issued with the 6.8 percent rate if legislation is not passed.
The Department of Education estimates the increase would result in about $1,000 in additional loan costs for each student. African-Americans carry the highest levels of high student debt among demographic groups, as 16 percent of black graduates owe more than $40,000 in loans, according to a recent Philadelphia Inquirer report.
About eight million American students use subsidized Stafford loans each year, most of whom are in households with income below $50,000. These loans have particular appeal because the federal government pays the interest rates on them when students are in college, while students are responsible for the interest of unsubsidized federal Stafford Loans as soon as they start borrowing.
This debate, like nearly all in Washington, has a political element as well. Some Republicans are objecting to the change, which would cost about $6 billion a year, arguing it will add to the deficit. And Obama’s aggressive push the reduced loan cost now is no doubt related to his need to win voters ages 18-29 in November.
That bloc of voters overwhelmingly supports Obama (he had a 28-point lead over Mitt Romney among these voters in a recent Pew Research Center poll), but even Democratic pollsters acknowledge many voters have been disappointed the president has not been able to reduce partisanship in Washington as he promised. While they are unlikely to back Romney in large numbers, these young voters may decide to stay home, as they did in 2010, which would be a major blow to Obama’s chances at winning a second term.