Federal Student Loan Interest Rates

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By C.N. Staff Writer
On July 1st of this year, student loan interest rates on the federal subsidized Stafford and Stafford Plus loans doubled. They doubled from 3.4% to 6.5% because Congressional leaders failed to act on the one-year extension they instituted last summer, after President Obama persisted to keep interest rates low.

student loanLoans issued before July 1, 2013 will come with 3.4 percent interest, which is locked in for the life of the loan. That means that where a student with a $10,000 subsidized Stafford loan would accrue about $.93 in interest each day at the current rate, but any new loan issue on or after July 1, 2013 that will jump to $1.86 in interest each day.
The one-year extension expired June 30th of this year and and July 1st the rate hike affected an estimated 7.4 million students, who obtained new student loans. In the weeks that followed, amid public outcry, a bipartisan deal seemed to be in the making. The Congressional Budge Office (CBO) created a package that would cost roughly $22 billion over the next 10 years and sent the package to the Senate, however Senate leaders thought the costs were too high and are now awaiting new negotiations from CBO.

Obama wants student loan interest rates to vary from year to year depending on market conditions, some Democrats want to extend the current 3.4 percent interest rate for a year or two to give Congress a chance to reform the law that deals with federal student loans and some Republicans have also called for varying interest rates based on the market, but Unlike Obama’s plan, the Republican plan would not offer better rates for subsidized loans than unsubsidized loans. Also unlike the president’s proposal, the rate would not be locked in over the life of the loan. It would vary, although it could be fixed after graduation.

For each year that Congress does not act and rates revert to 6.8 percent, students would pay an extra $1,000 through repayment over the life of their loans. Federal subsidized loans typically have much lower rates and far more flexibility in terms of forgiveness and consolidation than loans from private companies. In statements, both House Education Committee chair Rep. John Kline (R-Minn.) and ranking member Rep. George Miller (D-Calif.) said they’d prefer not to see rates simply jump back to 6.8 percent, but didn’t offer specifics as to how they’d like to achieve that.

Yet the rise in college tuition, which has increased dramatically over the past 30 years, is not being addressed. In 1980, tuition, room, and board for a full-time undergraduate at a public university averaged $5,939 when adjusted for inflation, according to the National Center for Education Statistics. In 2010, those costs averaged $13,297, an increase of 124 percent in 30 years, the center reports.

While students are paying more, public universities have been getting less from state governments that have been slashing their own budgets. “The cost per student has actually remained relatively flat,” says Jeff Lieberson, vice president of public affairs for the Association of Public and Land-Grant Universities. “For public institutions, the real difference has been a decline in state support.”

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