Senate reaches deal on student loans, would lower interest rates, tie them to market
A bipartisan group of U.S. senators reached a deal on student loan interest rates on Thursday that would lower rates for students who just recently saw them double.
The plan, reached nearly three weeks after lawmakers failed to reach a deal preventing loan rates from subsidized loan rates from doubling to 6.8 percent, would tie interest rates to the U.S. Treasury's 10-year borrowing rate.
“We've seen (interest) rates ebb and flow with the economy,” said Kirk Yats, director of scholarships and financial aid at Central Michigan University. “We hope the economy gets better and those rates will stabilize.”
This proposal would see undergraduates charged an interest rate on their loans of just 3.86 percent this fall on both subsidized and unsubsidized loans, which sat at 6.8 percent before subsidized loans did. Then, the rates are projected to increase to 4.62 percent for 2014.
The rates would continue to increase each year by about 0.8 percent, climbing to roughly 7 percent by 2017. This marks a four-year growth of about 3.2 percent and would bring rates higher, in four years, than they were after July’s doubling.
The deal would also cap undergraduate rates at 8.25 percent.
Yats said the college would prefer a fixed interest rate or even a decrease, for the sake of stability.
“We support capping or even lowering it so that it makes repayment easier,” he said. “It would also be good for the life of the loan if students know what their rate will be when they do go into repayment ... I think we would support the interest rates being rolled back to 3.4 percent. We do expect there will be some kind of cap.”
Federal Stafford loan rates jumped from 3.4 to 6.8 percent on July 1 after a one-year extension of the College Cost Reduction and Fairness Act of 2007 expired. Congress failed to reach an agreement on the law’s extension or replacement.
Signed into law by former President George W. Bush and passed with widespread support lawmakers in both parties, the act cut loan rates from 6.8 percent to 3.4 percent. After passing a one-year extension last year, the law expired and rates doubled to their earlier amount after lawmakers failed to reach a compromise deal.
This increase affected nearly seven million students and angered some at CMU.
“Education is our future and this was really short-sighted, crushing people before they can contribute," Clare senior Stephen Bott said.
Other students were outraged at the increase as they are already struggling with mounting debt and are not guaranteed employment after college.
“Racking up loans is not fun,” Romulus senior Kaela Torres said. “And paying off loans is a damper on my day. A job isn’t even guaranteed after you graduate.”