After taking a lot of flak for doing nothing (I’m sure they took it to heart before they went on vacation), Congress has completed step two of lowering student loan interest rates last week. Prior to leaving for vacation, the Senate passed a bill that would tie interest rates to the yield on the 10-year US Treasury note on June 1st, plus 2.05%. Graduate students would pay the yield on the 10-Year T-Note plus 3.6%. This means that loans issued this Fall for undergraduates would have an interest rate of 3.86% while graduates would pay 5.41%. Undergraduate loan rates are capped at 8.25% and graduate loan rates capped at 9.5%.
The House had previously passed a bill 221-198 but after the Senate passed their bill, they had to reconcile and pass it again. This time the Bipartisan Student Loan Certainty Act of 2013 sailed through 392 to 31. The Senate bill passed 81-18. President Obama is expected to sign this bill into law.
I paid for college using Stafford Loans (and others) and benefited greatly from them. My rates were set at around 3% when I consolidated following graduation. I even got a deferment when I started graduate school again and eventually paid it off over the next few years. The difference between 3% and 6.8% is not difficult to see, it’s more than double. Having your interest payments double can be painful, especially when the average student loan debt is around $24,000 (which happens to be a little less than what I owed). At 6.8%, a 10-year $24,000 loan calls for a $276 monthly payment. Lower that to 3% and you’re talking only $231. A savings of $5300 over the life of the loan.
While this doesn’t do anything for folks who have loans right now, it does lower borrowing costs for future students.
Did you have student loans? Would doubling the interest rate have impacted your decision or ability to go to college?
(Credit: kevin dooley)