Are You Ready for Your Student Loan Interest Rate to Double?

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Education is important!

The Youth is the future of our nation.

The Youth need to be educated.

…but at what cost?

Annual tuition and fees at public four-year universities cost an average of $4,793 in 2001. Today, that price tag is $8,244-a 72% increase. Similar trends can be seen in private institutions and two-year degree programs. Now, unless Congress takes action, student loan interests rates will double for millions of borrowers, and it’s going to happen sooner than you think!  

Are you ready?

The Two Types of Stafford Loans

Before going into how these interest rates could double, you need to be familiar with the different kinds of Stafford loans. First, you have subsidized Stafford loans, which are awarded based on financial need. You will not be charged interest before you begin repayment or during periods of deferment. The federal government “subsidizes” (or pays) the interest during these times.

Second, you have unsubsidized Stafford loans, which are not awarded based on financial needs. Any eligible student can take out an unsubsidized Stafford loan. You will be charged interest from the time the loan is disbursed to the time the loan is repaid in full.

In 2007 President Bush signed the College Cost Reduction and Access Act. This act was created to temporarily reduce the interest rate on subsidized Stafford loans from 6.8% to 3.4%. This bill, which lowered rates to 3.4%, will expire July 1, 2012, and without action from Congress rates will return to 6.8%.

Who Will Be Affected?

The U.S. Department of Education estimates 7.4 million students will borrow $31.6 billion in loans in the twelve months following July 1st. Essentially, unless something is done, everyone who gets a subsidized Stafford loan after July 1st will be affected. What does this really mean? It means that students are going to be looking at an additional $1,000 in student loan debt per Stafford loan.

What to Do?

Both Republicans and Democrats believe the subsidized Stafford loan rates should not be doubled and agree on extending the current rate for another year. However, both sides have not agreed on how to pay for the $6 billion bill.

And…

On May 24th, the United States Senate rejected both the Democratic and the Republican plans to prevent the doubling of the current subsidized Stafford loan interest rate. Senators voted 62-34 against the GOP plan and 51-43 against the Democratic plan. Each plan would have needed at least 60 votes to pass.

This is bad, real bad!  If something is not done, tons of people, people who ultimately rely on subsidized loans will face a 6.8% interest rate instead of the current 3.4%!

The GOP Plan!

Interest Rate Reduction Act (H.R. 4628)

The GOP bill would have funded itself by eliminating a preventative health care program. You can find more details here

The Democratic Plan!

Stop the Student Loan Interest Rate Hike Act of 2012 (S. 2343)

The Stop the Student Loan Interest Rate Hike Act is legislation that would be fully paid for by eliminating a tax loophole that the watchdog agency, the Government Accountability Office, has determined is a problem. This loophole currently allows some privately held companies and professional businesses to avoid paying their fair share of Social Security and Medicare payroll taxes

“Screw you guys.. We have a plan!” ~ Senators Plan!

On June 6th the Comprehensive Student Loan Protection Act was introduced. This is a bill that would change the structure for all new federal student loans disbursed after July 1, 2012, and they would become fixed-variable rate loans. The bill would require the applicable interest rate for student loans to be equal to the bond equivalent rate of 10-year Treasury bills auctioned at final auction prior to June 1st plus 3%.

Lastly, it would direct any remaining savings left over to be sent to the Treasury for the purpose of debt reduction. The silver lining here is that the Comprehensive Student Loan Protection Act would apply to all types of student loans!  This is good b/c loans aren’t fixed at a set rate and will fluctuate with the market.  We need policy which is flexible and not rigid!

What is your plan?

Leave a comment below and tell us your plan to tackle the Stafford Loan Crisis of 2012. What would you do?

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