On Monday, interest rates will double for all students who have or will obtain a Stafford loan to finance their education. The temporary fix Congress passed last year, under pressure from President Obama, expires. Congress has had over a year to fix it, but did nothing. Now they are on another un-deserved vacation until July 8th telling students to just suck it up.
Rates will go from 3.4% to 6.8% midnight Sunday
President Obama has been urging Congress to address the issue on a permanent basis. He made appearances at several college campuses urging students to contact their Congress member, but the pressure was not great enough to move Congress.
The president proposed a permanent fix so we do not have to deal with this issue over and over again. A permanent fix would allow students and prospective students to know what their loan will cost over its life. He suggested tagging the subsidized rate to the 10-year T-bill rate plus 0.93 percent, and un-subsidized rates at 2.93% above the 10-year rate. He would lock them in for the life of the loan.
Many Democratic Senators including Al Franken (MN) and Elizabeth Warren (MA) have been urging Congress to act. Senator Warren said students should pay the same interest rate as Congress charges big banks.
Some Senate Democrats and Republicans have put forth a bill that would set the rate for subsidized and un-subsidized Stafford loans at the 10-T-bill rate plus 1.85 percent. Graduate Stafford loans would be set at 3.4 percent above the 10-year Treasury rate. PLUS loans for parents paying for their children’s education would be set at 4.4 percent above the Treasury-note rate.
In aggregate, the Senate proposal would save taxpayers $1 billion over 10 years. Unlike a proposal passed by the House, the bipartisan Senate plan would lock in the interest rate over the life of a loan. It would cap interest rates for consolidated loans at 8.25 percent.
These rates would cost students less than current law (as of Monday), but almost double what the President wants.
The House passed a bill that would tag interest rates to the 10-year note, but only for 10 years, then they could go up.
The president’s concern is that if the add-on above the 10-year note is too high, loans will be too costly and price many poor and middle class students out of an education. T-bill rates are at historic lows now because of the Federal Reserve’s attempts to stimulate the economy. Those measures are ending and rates will go up. The 10-year T-Bill rate jumped to 2.49 percent from just over 1.6 percent at the beginning of May.
If Congress comes back from their latest vacation and addresses the issue, it could make the rates retroactive. However, not many have confidence that Congress will do anything because Republicans would just as soon see the rates double. If they had their druthers, the federal government would not subsidize student loans at all. The children of CEO’s do not need loans, they reason, so why should a waitress’s daughter, or a laborers son?
Attitudes by our elected “representatives” have caused the United States to lose its top ranking in education in the world. Republicans in Congress believe higher education is a privilege of the rich, not a right of all citizens. The people need to decide which it is.
The seeds of this neglect will be felt for generations.
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