Friday, March 29, 2024

Keeping student loans affordable

INTEREST RATESBy: NAACP

Unless Congress acts soon, interest rates for new, federally subsidized student loans will rise on July 1 from 3.4% to 6.8%. These loans, which were created by a 2010 law, are intended to help college undergraduates who demonstrate financial need. They only begin to accrue interest once a student has finished college. Nationwide, more than 7.4 million students with federal student loans will see their interest rates double unless Congress steps in to keep them low. Over 20% of those affected, or 1.5 million students, are African American, and nearly 1 million are Latino American students. If Congress fails to enact legislation, it is estimated that a student may pay over $1,000 more for the cost of the student loan over the lifetime of the loan.

On May 23, 2013, the U.S. House of Representatives passed a bill that would tie the interest rate for loans taken out after July 1, 2013, to the 10-year treasury rate plus 2.5%. And although it allows the rate to rise and fall with the market each year over the life of the loan, it establishes a cap at 8.5%. The U.S. Senate, in the meantime, defeated a proposal similar to the House bill by a vote of 40 yeas to 57 nays on June 6, 2013, but then went on to also defeat a proposal by Senator Tom Harkin (IA) to freeze the interest rates at 3.4% for two years (although the Harkin proposal did get a majority of the votes, with a margin of 51 yeas to 46 nays, the procedures of the Senate currently require that he get at least 60 votes to move forward). Senator Harkin paid for his plan by closing some tax loopholes, and his proposal would expire after two years or when the question of federally subsidized student loans was addressed in the reauthorization of the Higher Education Act, which is scheduled to be reauthorized at the end of 2013, whichever occurred first. In June of 2012, the U.S. Congress, when faced with a similar rate-doubling threat, froze the subsidized rates for another year, thus postponing the fight until this year.

A college degree is important: the unemployment rate for college graduates in April 2013 was 3.9%, compared to 7.5% for those without college degrees. Furthermore, findings as recent as 2011 show that there is a $1 million difference in high school graduates’ earnings compared with those whose highest education is a bachelor’s degree. On average, a bachelor’s degree recipient can expect to earn $2.4 million over their lifetime. Yet college is not cheap. For the 2010–11 academic year, the annual cost for undergraduate tuition, room, and board were estimated to be $13,600 at public institutions (42% higher than the cost 10 years ago); $36,300 at private not-for-profit institutions (31% higher than 1 years ago); and $23,500 at private for-profit institutions (an increase of 5% over 10 years ago).

3 COMMENTS

  1. I definitely agree that interest rates should be reduced to minimum to decide the problem of debt repayment. I know that there is a big number of students who do not have money to pay for their education and they apply for loans and get the needed sum of money as fast as they wish. I’ve read a lot about loans here and should say that it is a good service for those who really feel the lack of money, but it is also for those who know they can repay the debt. Or they’ll have a lot of troubles with lenders. The problem of student loans debt repayment is definitely thrilling and quite complicated. I’ve read that it is on the second place after housing mortgages. Not bad! I think everyone should read this article.

  2. I actually think the basics of Carlson’s analysis here is right, low student loan rates DO keep people out of the labor market because they’re going to school, this reduces unemployment and increases our Nation’s human capital and ought to be regarded as a good thing click here to read more

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