Who is at fault on student loans. It was a Democrat law. Federal Stafford Loans and Interest Rates As a political strategy, Democrats promised in 2006 to cut student loan interest rates in half -- to 3.4 percent. The rates applied to subsidized and unsubsidized federal Stafford loans. They quickly realized that doing so was very costly, so they created the College Cost Reduction Act of 2007 to provide a stepped reduction of interest rates. Rates for subsidized Stafford loans would drop a little each year until June 30, 2012, when the rate was to return to 6.8 percent. Last year, with 1.5 million, or more than one of every two, recent college graduates jobless or underemployed (53.6 percent), and a national unemployment rate of 8.2 percent, the 3.4 percent interest rate was extended for one year at a cost of $5.985 billion. The temporary, interest rate reduction only applied to subsidized Stafford loans. These are need-based loans on which the government pays the interest while the borrower is enrolled in school at least half time, during loan deferments, and, in some cases, during a grace period after graduation. Subsidized loans are available only to undergraduate students and account for roughly 40 percent of all federal student loans. In 2010, the government had essentially taken over the student loan program in America as part of the health care law. It took $8.7 billion from changes to the student loan program to fund the President’s health care changes. Impact of Resetting An estimated 7.7 million undergraduate students are expected to take out subsidized Stafford loans during the 2013-2014 academic year. For fiscal year 2014, which roughly corresponds to this period, the U.S. Department of Education estimates that the average loan amount will be $3,206 -- slightly lower than the $3,385 for the year before. If the interest rate on subsidized loans resets to 6.8 percent, the average student borrower with a $3,206 subsidized Stafford loan will owe approximately $727 more in interest -- $6.06 more per month over a standard 10-year repayment period. For a student who borrows $5,500 -- the maximum amount permitted for a subsidized Stafford loan for students in their third and subsequent years of undergraduate study -- the change in interest rate will amount to a difference of $1,248 in total interest paid, or approximately $10 more per month.
Posted on: Sat, 29 Jun 2013 13:49:20 +0000