President Barack Obama signed a bill into law Aug. 8 that will affect as many as 11 million of America’s college students and decrease their student loan rates.
The law is a compromise between the two parties that will reduce the interest rates of student loans following their doubling on July 1, which concluded after months of congressional bickering.
This year’s new rates will allow undergraduates to borrow subsidized and unsubsidized Stafford Loans at 3.9 percent interest rates. Had no federal action occurred, interest rates would have remained at the 6.8 percent mark that they climbed to earlier this year.
However, graduate students and parents will now have access to loans at 5.4 percent and 6.4 percent, respectively.
White House Press Secretary Jay Carney said the bill “will save millions of students an average of $1,500 on loans that they take out this year.”
One aspect of the bill ties student loans to the 10-year Treasury note. This effectively ties student loans to the performance of the economy, instead of being a fixed rate in previous years. This would result in higher interest rates for students as the economy improves.
However, in order to prevent student loan rates from rising too high, Congress implemented caps on various loans. The caps are 8.25 percent for undergraduates, 9.5 percent for graduates and 10.5 percent for PLUS loan recipients, such as parents.
The Congressional Budget Office subsequently said they do not anticipate interest rates to approach those caps for at least the next decade. Thinking ahead, the CBO estimated the bill will reduce federal deficits by $715 million over the next 10 years.
For the coming year, 18 million individual loans totaling approximately $106 billion will be covered by the law.
Prominent members of both parties were satisfied by the hard-fought compromise. House Speaker John Boehner, R-Ohio, referred to the bill as a segment of the “Republican jobs plan,” and said it was an example of what Washington can accomplish when it sets petty partisan politics aside.
“With the stroke of a pen, we’ve now officially taken the politics out of student loans,” he said.
Obama said that despite the efforts of the bill, the costs of college remain too high for many individuals. To that end, he said he was hoping that the bipartisan coalition could once again cooperate to help relieve the financial burden of college on students.
However, even with the passing of this bill, congressional officials have already begun to discuss scrapping the deal when they rewrite the Higher Education Act this fall.