The Student Loan Interest Rate Lottery: Borrowing Costs Are Headed Up
Following the failure of Congress to extend the 3.4 percent interest rate for undergraduate subsidized student loans, undergraduate unsubsidized and subsidized student loans reverted to a fixed rate of 6.80 percent. GradPLUS and Parent PLUS loans remained at a fixed rate of 7.90 percent. The interest rate on consolidation loans is the weighted average rate on the underlying loans rounded upward to the nearest one-eighth, andcapped at 8.25 percent.
The Senate passed the Bipartisan Student Loan Certainty Act (a "deal" supported by the administration and expected to pass the House) which will amend the Higher Education Act to change the interest rates on all new subsidized, unsubsidized, GradPLUS, and Parent PLUS loans (and would apply retroactively to loans made on or after July 1, 2013). UPDATE: The amended bill passed the House by a vote of 392-31 and now moves to the White House for the president's expected signature.
The new interest rates will be a fixed rate set for the academic year during which the loan is made based on the 10-year Treasury rate. Under this scheme, current students will get good rates now and for the next few years because interest rates are historically low in the aftermath of the Great Recession. Rates are projected to rise steadily over time, and as the economy improves, students will borrow at higher interest rates.
This is the "deal"":
The Senate passed the Bipartisan Student Loan Certainty Act (a "deal" supported by the administration and expected to pass the House) which will amend the Higher Education Act to change the interest rates on all new subsidized, unsubsidized, GradPLUS, and Parent PLUS loans (and would apply retroactively to loans made on or after July 1, 2013). UPDATE: The amended bill passed the House by a vote of 392-31 and now moves to the White House for the president's expected signature.
The new interest rates will be a fixed rate set for the academic year during which the loan is made based on the 10-year Treasury rate. Under this scheme, current students will get good rates now and for the next few years because interest rates are historically low in the aftermath of the Great Recession. Rates are projected to rise steadily over time, and as the economy improves, students will borrow at higher interest rates.
This is the "deal"":
- The interest rate for subsidized loans and unsubsidized loans to undergraduate students will be the 10-year Treasury rate plus 2.05 percentage points (currently 3.86 percent), capped at 8.25 percent.
- The interest rate for unsubsidized loans to graduate students will be the 10-year Treasury rate plus 3.60 percentage points (presently 5.41 percent), capped at 9.50 percent
- The interest rate for GradPLUS and Parent PLUS loans will be the 10-year rate plus 4.60 percentage points, (presently 6.41 percent) capped at 10.50 percent
My take? Current undergraduate students win (woot!), but, um, future students lose.
CBO cost estimate of H.R. 1911:
CBO cost estimate of H.R. 1911:
http://www.cbo.gov/sites/
CBO cost estimate for a number of student loan proposals:
CBO cost estimate for a number of student loan proposals:
http://www.cbo.gov/sites/
CBO estimates of the budgetary costs of the Bipartisan Student Loan Certainty Act (THIS IS H.R. 1911 Amended):
http://www.cbo.gov/sites/
The actual text of the Senate's version of H.R. 1911 (compromise legislation):
CBO estimates of the budgetary costs of the Bipartisan Student Loan Certainty Act (THIS IS H.R. 1911 Amended):
http://www.cbo.gov/sites/
The actual text of the Senate's version of H.R. 1911 (compromise legislation):
http://www.gpo.gov/fdsys/pkg/
TICAS' one-page statement on the bill's passage:
http://www.ticas.org/files/
NY Times article on the compromise bill's passage:
http://www.nytimes.com/2013/
TICAS' one-page statement on the bill's passage:
http://www.ticas.org/files/
NY Times article on the compromise bill's passage:
http://www.nytimes.com/2013/
By Heather | Category: Student Loan Policy, Student Debt, Higher education funding
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