House passes student loan interest rate fix

On Wednesday, July 31, 2013, the U.S. House of Representatives gave final passage to a compromised bill for student loan interest rates and the president is expected to sign.

For new student loans made since July 1, 2013, the new rates for this year will be:

• 3.86 percent for undergraduate Stafford subsidized and unsubsidized loans
• 5.41 percent for graduate Stafford loans
• 6.41 percent for PLUS loans.

This is significantly less than borrowers would be paying if a deal hadn’t been brokered. Without the legislation, the rate would have been 6.8 percent on all Stafford loans and 7.9 percent for PLUS loans.

Although this legislation is far from perfect, it a step that must be taken in order to provide financial relief to American students and their families.

This legislation will bring undergraduate interest rates back under 4%, a far more sustainable and appropriate level than the current 6.8% rates.
–Rep. Tim Bishop (D-NY)

Even with the changes, it’s key to understand that the federal loan program would offer rates for the subsidized and unsubsidized Stafford loans that are fixed for the life of the loan. The risk is that rates on new loans in subsequent years could climb higher, but again the federal loan would have a cap. Federal student loans also have other options for repayment terms that most private education loans do not have at this point.

Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money. But rates would be capped and not top 8.25% for undergraduates, 9.5% for graduate students and 10.5% for parents.

The Congressional Budget Office estimates that rates would not reach those limits in the next 10 years, so college students in the next few years shouldn’t have to worry. But the class of 2027 might not be so lucky.