stI’m sure you’ve heard the news that congress left town for their week-long Independence Day break without reaching an agreement to prevent the rate increase on certain new Stafford loans. Interest rates on subsidized student loans went from 3.4% to 6.8% as of Monday, July 1st. But what does this really mean for you or your children?
- The increase only applies to new loans. Any existing loans will stay at their original interest rate.
- Not only does it only apply to new loans, it only applies to a certain type of loan, the subsidized Stafford loans. These loans are for undergrads that have a financial need. According to the nonpartisan Congressional Budget Office 25% of all new student loans that come directly from the government each year are Stafford Loans. Of the 25.5 million undergrads that enrolled in the 2011-12 academic year, 7.9 million were subsidized Stafford borrowers.
- The Congressional Budget Office estimates that keeping the rate at 3.4% “would increase the cost of the student loan program to the government by $41 billion between 2013 and 2023.”
- Stafford Loans are not the only type of loan from the government. Unsubsidized loans and PLUS loans already have higher interest rates that are not scheduled to change. An unsubsidized loan has an interest rate of 6.8% and PLUS loans are at 7.9%.
- A group of senators from both parties announced a plan that would link interest rates on new federally backed loans to the financial markets. It would prevent the rate increase for now but could mean higher rates in the coming years. The President included a variation of that market-based approach in the budget he sent to Congress earlier this year. Democrats attacked the plan because there would be no cap on how high the interest rates could go. But as I mentioned at the beginning no compromise has been reached and for now we sit and wait until congress returns from the July 4th holiday.
- The senate will revisit the issue as soon as July 10th and wants to retroactively restore the rates back to 3.4% for another year to give them time to come up with a solution to the big-picture-problem of student loan debt.
- Even when lawmakers return, there’s no guarantee they will be able to restore the lower rates.
Check back after July 10th to see what happened when senate revisited the issued. In the mean time check out or Student Loan Education Center
What are your thoughts about increasing the interest rate on subsidized Stafford loans?
What are your thoughts about the overall student loan crisis?