View Post

Student Loan Rate Hike

Posted by Arnold on 08/01/13, 12:15

Exactly one month ago, federal student loan interest rates doubled due to the expiration of the College Cost Reduction and Access Act, which has maintained low student loan interest rates since 2007. For the entire month of July, all new federal loans came with a steep 6.8% interest rate, compared to the old 3.4% rate. For some, the higher interest rates are the lesser of two evils; either interest rates could go up, or other things such as federal Pell grants could be cut. For others, higher interest rates bring up the serious question as to whether the increased debt is even worth attending college.

Fortunately, a new decision has been reached today by Congress. Federal student loan interest rates will now be tied to the financial market. A small increase will be seen immediately (3.4% to 3.9%), but this is no huge jump like the doubled rate from July. Keep in mind, these are rate for undergraduate students; graduate students will pay 5.4%, and parents will pay 6.4% for federal loans. The good news is, although interest rates will increase as the economy strengthens, student loan interest rates will max out at 8.25% for undergraduates, 9.5% for graduates, and 10.5% for parents.

I think that having interest rates reflect the state of the economy is a great idea. Congress has dragged its feet in the past when deciding on changes to make regarding student loans, and it's a better situation that the government has a little less say when it comes to manipulating college students' money. Instead of artificially setting student loan interest rates, letting the economy "decide" on interest rates would allow new college graduates to use their future income potential to pay for their loans. When the economy is good, people are usually making more money to pay for more things. This new student loan interest rate law might even be an incentive for some people to go to college sooner rather than later in order to take advantage of a lower interest rate. As the economy is still recovering from the most recent recession, student loan interest rates would most likely increase as the economy continues to pick up.

There are no comments to display.