Blumenthal: Stop the student loan interest rate hike
Published: Tuesday, May 15, 2012
Updated: Friday, August 23, 2013 17:08
Sen. Richard Blumenthal, D-Conn., arranged a Monday interview with The Daily Campus to discuss his ideas for funding further education and to encourage students to support a bill that would prevent the doubling of the interest rates of select student loans.
“My goal is that Congress will keep student loans at 3.4 percent,” Blumenthal said.
Interest rates on subsidized federal Stafford Loans for undergraduate students are set to increase from 3.4 percent to 6.8 percent on July 1 for new loans. The increase will only affect federal Stafford Loans processed on or after July 1.
The current rate was signed into law in 2007 by President George W. Bush and the law specified that the previous interest rate of 6.8 percent would resume after four years.
Sponsored by U.S Rep. Joe Courtney, D-2nd District., the proposed Stop the Student Loan Interest Rate Hike Act will extend the current interest rate for an additional year.
Blumenthal said that funding for a consistent loan rate should come from the “loophole that currently exists,” which allows families with an annual income of over $250,000 and individuals with an income of over $200,000 to form an S-corporation to avoid paying payroll taxes, which fund Medicare and Social Security.
“It’s a small business in legal formula, for purposes of tax law,” Blumenthal said of S-corporations that fit his loophole definition. “This loophole should be closed regardless of the where funds come from.”
Blumenthal also supports the proposed Know Before You Owe Private Lender Act, which would mandate that private lenders tell prospective student borrowers about the consequences of borrowing and inform them of other opportunities available through their schools.
“Colleges would be notified by private lenders when a student is borrowing from them and encourage students to seek more affordable loans so people don’t leap into committing,” Blumenthal said.
Blumenthal said he supports Pell Grants, Perkins Grants, funded internships programs and grants for equipment and facilities at community colleges.
Blumenthal also said he is investigating private for-profit colleges that “entice students into programs that are often not productive.” Blumenthal’s mission is to “address the burden on young people,” he said.
There are about 83,000 Stafford Loans in Connecticut currently and 61 percent of 2010 graduates left their schools with an average debt of $25,300, according to Blumenthal.
“This overhang of debt has huge ramifications,” Blumenthal said. People who have tens of thousands of dollars in debt are less likely to start businesses and move across the country. It stifles energy and entrepreneurial spirit.”
Blumenthal said he has been trying to make students and families aware of Stafford Loans and their approaching interest increase.
“Connecticut has a great deal at stake,” Blumenthal said. “We need a rallying cry that will arouse everyone affected on campuses across the country to tell their senators and congressmen to keep the interest rate at 3.4 percent.”
*Editor’s note: This article has been updated to clarify that Sen. Blumenthal does not support changing tax provisions for all small businesses and S-corporations. Only a small percentage of S-corporations will be affected by Sen. Blumenthal’s provision: corporations that have three or fewer employees, make more than $200,000 annually for individuals or more than $250,000 for joint filers and are engaged in professional services.