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The pressure to fix the student loan
interest rate that doubled on July 1st is increasing as Congress
sets to recess in a few days until after Labor Day weekend. Fortunately, it appears they might actually
have legislation ready for the President to sign into law as early as today!
H.R. 1911 is moving forward. In case you are unfamiliar with the
legislative process, a bill keeps its number and the house abbreviation from
which the bill originated – in this case, the House of Representatives. On July 24th, the Senate passed
this bill with amendments (changes). The
bill has to go back to the House (since they agreed to pass a different
version) and re-pass the bill with its new changes. If the House doesn’t agree with the changes
and votes it down, then the two houses can conference to reconcile the bill or
the bill is killed and the doubled July 1st student loan interest
rates will remain. However, it doesn’t
appear that the new bill will fail in the House. The likely outcome is that the House will
pass the new version of H.R. 1911, which means it will then be delivered to the
President to sign (which he has already stated he would do) in order to be
enacted (become law). Once the bill is
enacted, the student loan interest rates will change.
The Changes to
H.R. 1911:
- Direct subsidized and Direct unsubsidized Federal Stafford Loans will match the rate of a high-yield ten-year Treasury note plus 2.05% and the rate would be capped at 8.25%. The rate estimate for this upcoming fall is 3.9%.
- PLUS loans have been divided:
o
Graduate
Student PLUS loans will match the rate of a high-yield ten-year Treasury note
plus 3.6% and capped at 9.5%. The rate
estimate for this upcoming fall is 5.4%.
o
Parents
and some Graduate Student PLUS loans will match the rate of a high-yield
ten-year Treasury note plus 4.6% and capped at 10.5%. The rate estimate for
this upcoming fall is 6.4%.
- Compare the new and old versions of H.R. 1911 here.
What this Means
for You:
- New Pros: The very high rates set on July 1st (6.8%) will go away. These rates are also lower than what was originally proposed (for the most part). Variable interest rates may allow you to pay less over the life of the loan if the rates stay low.
- New Cons: The PLUS loan rates for some graduate students and parents are higher than what was originally proposed. There is a disincentive for parents to help their children lessen student debt obligations – expect more students to be applying for loans in their own name. Variable interest rates may require that you pay more over the life of the loan if the rates increase as the market improves.
Debt is never fun. The fewer loans you take out the better it is
for you long-term. As the interest rates
are presently low, it’s even more important that you make an effort to pay any
interest owed during school, so that if the rates do rise when it comes time
for repayment, you’re not facing a high interest rate against a balance that
has grown from compound interest.