Congress Moves to Lower Interest Rates on Student Loans

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UniversityAfter 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)

{ 4 comments, please add your thoughts now! }

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4 Responses to “Congress Moves to Lower Interest Rates on Student Loans”

  1. This is a good step for the future. My 6.25 and 6.9% loans are pretty rough!

  2. Karl says:

    It seems that lowering the rates will just enable colleges to continue to raise the price of education while it does not appear to raise delivered value.

    Once again we are insulating people from market signals.

    How about you get the decrease if you graduate or if you attain a certain GPA?

    • Educate4Less says:

      Karl, Great idea. In fact, it makes so much sense that the bozos in Congress won’t even consider it.

      Add to the problem of the American taxpayer backing below-market loans to unemployed 18 year-olds the fact that many low income kids get grant subsidies (from taxpayers) for colleges from which they have no shot at graduating and you have continued to fuel the student loan crisis fire.

      Default rates are rising dramatically (in part because kids are finding out that Gender Studies degrees don’t land CEO jobs), Congress has kicked the student loan can down the road (again!) and more foolish kids and parents are going into debt for bad degrees or for colleges that don’t graduate students.

      The (government-forced) taxpayer bailout of the Trillion dollar student debt mountain is right around the corner…

  3. Jennifer says:

    Although decreasing the rates now will help those students currently pursuing higher education, there are folks with students loans now that would greatly benefit from a break. There should be some kind of incentive for those in the working world making on time payments for lets say 12 consecutive months. There are plenty of people out there that are just deferring their payments making the entire loan situation for the nation even worse.

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