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Bill Proposed to Fix Interest Rates on Federal Student Loans

Posted on Apr 12, 2013

As has been reported in the news, the interest rate on subsidized federal Stafford student loans is due to double from 3.4% to 6.8% on July 1, unless Congress does something in the meantime.  In the Land of Sequester, that may not happen.

But that doesn't mean other proposals aren't being made.  Three Republican senators are urging Congress to tie student loan interest rates to U.S. Treasuries.  As reported in The Hill:

"Sens. Tom Coburn (Okla.), Richard Burr (N.C.), and Lamar Alexander (Tenn.) introduced legislation on Tuesday that would provide a permanent solution to the interest rate issue by requiring that all new loans be tied to the U.S. Treasury 10-year borrowing rate, which stands at 1.75 percent, plus 3 percentage points."

This approach, they claim, is preferable to temporary fixes, like the lowering of the rate on subsidized Stafford loans, that constantly have to be renewed.  The bill would apply to all newly issued Stafford, Graduate PLUS and Parent PLUS loans, and would direct any remaining savings to the Treasury for deficit reduction.

So the question becomes, although a 4.75% rate looks better than 6.8%, what happens as those numbers fluctuate?  What is the likelihood of the 10-year borrowing rate going up more than 2 points in the next few years?  Who knows, but a lower rate for those currently in school could make a good education more affordable.  But what it could to in the long term could be of concern.

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Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.