Cuts to student loan interest rates will benefit few
What happens when everyone in Washington comes together to do something about a problem and ends up helping almost no one?
We call it Tuesday.
Francesca Chambers of Red Alert Politics reports.
You’ve been punk’d: Student loan interest rate cuts won’t affect most young Americans
Politicians and political groups on both sides of the aisle have painted the student loan rate debate as the question de l’année for young Americans. But 20-somethings rejoicing over the law signed today by President Obama that reportedly “stops student loan interest rates from doubling” are in for a rude awakening. The odds that the interest rate on your student loan will go down are slim to none. In other words, you got punk’d.
In an effort to ‘win the youth vote,’ both sides attempted to champion student loan rate reforms. Legislators and media framed this issue as a huge win for young people, when, in reality, relatively few young Americans will be affected by the reforms signed into law today.
The legislation agreed to by Congress and the White House ties interest rates on all new Stafford student loans to the financial market. Rates will now be determined by how much it costs the government to borrow money. Currently, the market rate is low, allowing the government to keep interest rates on federal loans taken out after July 1, 2013 low. Undergraduate students taking out Stafford loans in the second half of 2013 will see their interest rate climb slightly to 3.9 percent from the current rate of 3.4 percent. Without the legislation signed today, those rates would have returned to 6.8 percent – the rate originally approved by Congress years ago.
As of 2012, graduate students no longer qualify to receive subsidized Stafford loans (loans the government pays the interest rate on while you’re in school), but their rates on unsubsidized Stafford loans (loans the student is responsible for paying the interest rate on at all times) will decrease from 6.8 percent to 5.4 percent.
Of note is that this ‘monumental’ legislation only reduces the interest rate on new federal student loans. Thus, anyone who is over the age of 22 will not be affected unless he or she is a non-traditional student or a graduate student. Furthermore, the legislation deals only with Stafford loans – a very specific type of loan that only 34 percent of all undergraduate college students take out. Meaning, only one in three current undergrads will actually see their student loan interest rates go down and only on future loans. Loans previously taken out by current and past students will not be affected in any way.
You’ve been punk’d: Student loan interest rate cuts won’t affect most young Americans (Red Alert Politics)
Comments
Good. If the rate cut benefits few, that’s fewer tax dollars wasted in subsidizing over priced higher education.
The focus should be on over paid administrators, bloated costs, over staffed universities, and no attempts to drive efficiency.
When a law helps no one, its one of two possibilities: a disaster that hurts everyone, or we dodged a bullet because it hurt no one.
In general, keeping interest rates artificially low costs taxpayers. So limiting the scope of this is a law that helps many, many people – namely the taxpayers who would otherwise get the shaft.
If it reduces college attendance at overprice colleges and/or shifts the focus to more value-based colleges and universities and/or forces universities to cut costs or compete on value – those are all good things for almost everybody too.
So what’s the problem again?