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Financial Aid, Admissions, and Scholarship Assistance for College Undergrads and Graduate Students.

Stafford Loan Interest Rate Changes

Stafford Loan Interest Rate Changes

July 1st marked the day that the interest rate for a Subsidized Stafford Loan was doubled to the “normal” 6.8% rate.  Republicans and Democrats both wanted to extend the lower 3.4% rate, but were unable to agree on a resolution before the July 1, 2012 deadline.

That being the case, let’s look at how this increase will really affect your loan.

  1. This increase will only affect Subsidized Stafford Loans; Unsubsidized Stafford Loans, PLUS Loans, or Stafford Loans for graduate students will remain the same.  “Subsidized” means that the Federal Government pays the interest while the student is still in school. Remember, subsidized means that the Federal Government pays the interest rate while the student is in school.
  2. This rate revision will only affect new loans made after July 1, 2012. The interest rate on loans taken prior to this will see no change.
  3. An extension would only help a small ratio of student borrowers as only about a third of the borrowers qualify for Subsidized Stafford Loans.

How will this impact a student who borrows $19,000, the current maximum, in Subsidized Stafford Loans?  The estimated revision will cost about $3,799 over the typical ten year repayment, which is about $31.66 per month.

Is this increase the real issue?  Not according to David Feitz, Executive Director of the Utah Higher Education Assistance Authority. He states “the proposal is a minor, short-term fix to the nagging problem of college affordability.  We favor anything the nation can afford.  What we need is a longer-term solution to help keep the cost of borrowing as low as possible.  That is not being discussed.”

There has been a bill introduced by 2 U.S. Senators that would ensure fixed interest rates on all new federal student loans to the ten year Treasury rate (1.59% as of June 15th) plus 3.0 percentage points.  This bill, The Comprehensive Student Loan Protection Act (S.3266) is based upon a proposal put forth by the New America Foundation’s Federal Education Budget Project.  The project director, Jason Delisle, states the Act would cost taxpayers nothing; this statement is based on a 2011 Congressional Budget Office estimate. Most undergraduate students will leave school with less debt than they would have under the extension of the 3.4% rate claims the foundation.