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Updated Aug 23, 2013 - 12:37 pm

Worry remains over long-term impact of student loans

WASHINGTON -- Arizona students who rely on federal student loans to go to college can breathe easy, at least for now.

The House on Wednesday gave final approval to a bill that would retroactively lower interest rates on federal student loans, which doubled from 3.4 percent to 6.8 percent after Congress failed to act before July 1.

President Barack Obama is expected to sign the bill, which means that Arizona undergraduates can get student loans at 3.86 percent interest. Graduate students will be able to borrow at 5.4 percent and parents at 6.4 percent, both lower than the rates that were in place for those groups last year.

But critics said the savings are temporary, noting that the bill ties the government loans to the financial markets and lets the rate rise or fall, accordingly.

The bill caps the rates, but at levels that are ultimately higher than what students would have paid if Congress did nothing. Undergraduate loans would be capped at 8.25 percent, while the cap on graduate loans is 9.5 percent and for parents is 10.5 percent.

"It's an interest rate increase masquerading as a decrease," said Mark Kantrowitz, publisher of edvisors.com.

Kantrowitz said the deal could cause rates to skyrocket within several years if the economic recovery continues.

"If you're a student who's in undergraduate school right now, or expect to be in the next couple years, then you're one of the lucky winners," said Heather Jarvis, who runs a website on student loans.

Kantrowitz agreed that students can get a good rate right now.

"But if you look at the worst-case scenario, which is very likely to occur within the next several years," the rates will surpass the 6.8 percent students would have paid this month, he said.

The Republican-led House passed a version of the student loan bill in May, over the objection of almost all House Democrats. The bill foundered in the Senate, but Democrats there were unable to pass a one-year extension of the 3.4 percent rate before the July 1 deadline when the rates doubled.

Those higher rates were expected to affect about 7 million students nationally as many as 450,000 in Arizona.

Once the higher rates kicked in, the Senate changed course and voted 81-18 for a bill similar to the House measure. The House overwhelmingly passed the bill Wednesday, voting 392-31 for the plan that would be retroactive to July 1.

Rep. Kyrsten Sinema, D-Phoenix, voted for the measure after opposing it earlier. She pointed to the fact that this later version included Senate language that fixes interest rates for the life of a loan.

"It helps students and parents in our community prepare for the 2013 fall semester," said Sinema, who also teaches at Arizona State University. "Students including my own at ASU, will start school in just a few short weeks. They must have the ability to prepare now."

But Rep. Raul Grijalva, D-Tucson, voted against the bill, saying students would have been better off in the long run if Congress had let the 6.8 percent rate stand. He was the only Arizonan to vote against the bill.

"This bill means students will pay $715 million more down the road than they would if current rates, which recently doubled for new borrowers, stayed untouched," Grijalva said in a statement after the vote. "Today, we reverse the July 1 student loan interest rate hike at the cost of ultimately charging students more over the next decade."

Congressional researchers estimate that the deal will reduce the deficit by $715 million over the next decade, by raising the rate the government charges students for their loans.

"It's absolutely clear it's a way for Washington to pretend like they're addressing the problem," Jarvis said, when they are actually decreasing "the government's investment in education."

Serena Unrein, a public-interest advocate at Arizona Public Interest Research Group, agreed.

"The deal that Congress has struck has charged future borrowers even more than is necessary, and does so to pay down the deficit," Unrein said.

Unrein hopes that Congress will take up the issue again before the rates are expected to shoot up, which is expect to occur after 2015.

That could come as early as this fall when Congress is expected to modify the Higher Education Act. Sen. Tom Harkin, D-Iowa, chairman of the Senate committee that would consider that bill, has said that he would push for a review of student loan rates then.

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