By Linnea Bennett
Shalae Flores tried to avoid student loans.
The incoming Arizona State University freshman, like thousands of other college students, is worried that a bipartisan congressional compromise that links student loans to interest rates could prove costly in the future.
The House passed the legislation Wednesday, and President Barack Obama is expected to quickly sign it.
Under the bill, most borrowers will take out loans at lower rates this fall. But as the economy improves, students could be borrowing at higher rates as seniors or graduate students than as freshmen. The compromise comes as students are already grappling with skyrocketing higher-education costs and taking on debt in record numbers.
Flores earned a merit scholarship and applied for additional scholarships and grant money. She also opted out of living on campus in the dorms for Barrett, The Honors College next year.
Instead, the global-health major will live at home and take public transit to campus every day.
But she did not avoid the burden of loans completely.
At the urging of her father, she accepted two small federal loans to use as a safety net for on-campus meals, transportation, books and fees in her first year of school.
"It's the last thing I wanted to do," Flores said. "I'm just afraid that as the years go on in my academic career, my (financial aid) position isn't going to be as helpful as it is now."
The deal Congress passed Wednesday ties interest rates to 10-year Treasury notes -- the rate at which the government borrows money -- and allows those rates to fluctuate with the financial markets. Congress was under pressure to reach a compromise after rates on new subsidized Stafford loans doubled to 6.8 percent on July 1.
The new deal will lower loan rates to 3.9 percent in the fall for undergraduate students like Flores. Graduate students will borrow at 5.4 percent, and parents, at 6.4 percent. The deal will not affect students who have already taken out or are paying back their current loans.
But if the economy improves and the government's borrowing costs go up in the coming years, students who rely on student loans will also have to borrow at a higher rate down the road.
There are some safeguards to the plan, including an 8.25 percent cap on interest rates for undergraduates, a 9.5 percent cap for graduate students and a 10.5 percent cap for parents.
The legislation received strong bipartisan support, passing the House on a vote of 392-31. Eight of Arizona's nine representatives in Congress supported the plan; U.S. Rep. Raúl Grijalva, a Tucson Democrat, voted against it
U.S. Rep. Ann Kirkpatrick, a Democrat whose district includes Northern Arizona University, said she supported the bill because it allows students and their families to better plan for the future.
"I think it gives them some predictability when they're making a school choice when they're thinking about the school debt they're going to take on," Kirkpatrick said.
In a statement released Wednesday, Grijalva said the bill doesn't do enough to make financing college affordable.
"We need to make student loans more accessible to students and easier to pay back," Grijalva said.
Lauren Asher, president of the Institute for College Access and Success, a non-profit dedicated to making college more affordable, agrees. She said the plan allows the government to profit at the expense of students, who can ill afford to be taking on debt.
"(The plan) generates even more revenue for the government than leaving current rates in place, costing parents and students an additional $715 million," Asher said.
Asher's group projects undergraduate student-loan rates could exceed 6.8 percent by 2017. That means students like Flores, who are beginning their freshman year this fall, could be borrowing at almost double the cost by the time they are seniors.
The group also projects graduate-student-loan rates could top 6.8 percent by 2015.
The specter of rising student-loan rates is the latest chapter in an ongoing debate about the cost of higher education. In a major economic speech last week, Obama suggested he would offer new ideas for reining in college expenses, saying he would outline an "aggressive strategy to shake up the system."
The president's remarks come as record numbers of students are graduating in debt, and more of them are defaulting on their student loans. A newly released Pew Research Center analysis of government data found that 19 percent of the nation's households owed student debt in 2010, more than double the share two decades earlier.
The report also found a record 40 percent of all households headed by someone younger than age 35 owed such debt, by far the highest share among any age group.
Arizona students are no exception.
According to the Project on Student Debt, an initiative that tracks student debt in each of the 50 states, 49 percent of students who graduated from Arizona's public four-year universities in 2011 were in debt.
The average debt load per student was $19,950.
Meanwhile, tuition at Arizona's universities rose exponentially over the last six years.
ASU's tuition and fees for a full-time resident undergraduate student doubled from $2,486 a semester in 2007 to $5,001 a semester starting this fall. The University of Arizona's semester costs jumped from $2,523 to $5,202 over the same period of time.
With costs rising so fast, experts say students are taking out bigger loans but preparing for careers and salaries that might not allow them to pay those loans back -- especially at higher interest rates.
Anthony Carli, a political-science major at the University of Arizona, is one such student.
Carli relied almost entirely on student loans to finance his in-state degree.
By the time he graduates next May, Carli estimates he will graduate with $70,000 in federal student loans.
"It's terrifying," he said. "I want to go into advocacy, but those jobs, those non-profit jobs, just don't pay."
Carli is interning this summer for U.S. Rep. Kyrsten Sinema, D-Ariz., in her Washington, D.C., office. He wants to move to Washington after college but doesn't think he'll be able to afford it.
"I'm constantly worried about how I'm going to make my payments when I graduate, am I going to be able to accept the job that I want to."
A long-term solution can't come soon enough for Flores, the soon-to-be ASU freshman.
She wants to join the Peace Corps after college and is considering going to medical school. But she's afraid of taking on too many loans and not being able to repay them.
"I definitely want to incur the least amount of debt as possible," she said.