Student Loan Interest Rates: Compromise (Finally!) Reached

Image courtesy of ddpavumba at FreeDigitalPhotos.net

Image courtesy of ddpavumba at FreeDigitalPhotos.net

Last Friday, President Obama officially signed into law a bipartisan compromise bill that lawmakers say will save students thousands of dollars in student-loan interest payments after they graduate. NCTC, particularly through the Financial Aid U and College Assistance Programs, is committed to ensuring low- and moderate-income students are able to afford the higher education they want to get ahead. Here’s a brief overview of the compromise that was reached, after this summer saw a flurry of proposals and counter-proposals attempting to address the student loan issue.

Interest rates on subsidized Stafford loans had been temporarily lowered to 3.4 percent, in an effort to keep the cost of higher education more affordable for students – especially as nationwide student-loan debt has surpassed $1 trillion, and that amount continues to grow. However, on July 1, interest rates on these loans doubled to 6.8 percent when Congress failed to agree upon a proposal by the temporary measure’s expiration date.

The President referred to the bill as only a first step in tackling the affordability of higher education, stating “Our job is not done.” While some criticized the compromise for not going far enough, Congressional leaders are already talking about long-term plans to curb the rising costs of college, improve student outcomes, and tackle the level of debt that recent graduates face.

This new compromise will:

  • Set interest rates for undergraduate Stafford loans at 3.86 percent for the 2013-2014 academic year;
  • Tie interest rates for all federal student loans to market rates for subsequent years – but the rates are not to exceed 8.25 percent for undergraduate loans, 9.5 percent for graduate loans, and 10.5 percent for parent PLUS loans.

There is still some concern that, as our economy improves, students might face higher interest rates – more than double the previous 3.4 percent – in 2015 and onward.

One component of the compromise involved fixing the interest rate for the life of each loan, which was not part of the original House version of the bill. This was condition set forth by the President and supported by many higher education advocates, who emphasized that fixing the rate for the lifetime of the loan allows families to better plan-out a repayment strategy and decide what they can best afford.

Overall, approximately 11 million undergraduates are projected to benefit from these lowered interest rates in the coming school year, saving the average student about $1,500 in interest charges for those loans. The Congressional Budget Office has also estimated that this bill will reduce the deficit by $715 million over the next 10 years.

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About National Community Tax Coalition

National Community Tax Coalition (NCTC) is the nation's largest, most comprehensive membership organization for community-based organizations offering free tax and financial services to low-income working families.

Posted on August 14, 2013, in NCTC and tagged , , . Bookmark the permalink. Leave a comment.

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