Student Loan Rate to Drop

Just in time for the fall semester, the House of Representatives approved a Senate a plan to roll back student loan interest rates from 6.8 percent to 3.86 percent. The plan would tie student loan interest rates to the financial market, specifically to 10-year Treasury bills. Graduate student loan rates would be 5.4 percent and loans for parents would be 6.4 percent. The bill is on the way to President Obama for his signature.

After the Senate passed the bill, President Obama hailed the compromise that led to the passage. He said, “This compromise is a major victory for our nation’s students.”  The Congressional Budget Office estimates the deal will save the government about $715 million over the next ten years. The notions of raising money for the treasury on the backs of students and allowing interest rates to rise with market angered some Democrats.  Massachussets Senator Elizabeth Warren said, “This is obscene. Students should not be used to generate profits for the government.”

Here’s how it shakes out for borrowers

All undergraduate student loan rates would be set at the Treasury rate plus 2.05 percentage points.
Graduate student loans would be set at 3.6 percentage points above the Treasury rate.
Loans for parents will go to 4.6 percentage points above the Treasury rate.

The good news is that under the plan rates won’t escalate endlessly. They’ll be capped.

Maximum rates

The maximum rate for undergraduates would by 8.25 percent.
The maximum for graduate stude student would be 9.25 percent and the maximum for parents would be 10.25 percent.

 

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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.