Cutting student loan interest rates in half will save the
average working- and middle class borrower $4,420 over the life of their loans,
according to a new report by U.S. PIRG’s Higher Education Project.
The Congressional proposal would lower interest rates on
undergraduate subsidized Stafford loans over the next five years until they are
cut in half to 3.4% starting in 2011. In
2004-2005 more than five and a half million students took out subsidized
Stafford loans to pay for college.
“Over the past decade we have asked America’s college
students to shoulder a heavy burden of debt to pay for college,” said Luke
Swarthout, U.S. PIRG Higher Education Advocate.
“Cutting interest rates on student loans will help millions of working
and middle-class students and their families by saving them thousands of
dollars in student loan payments.”
By lowering interest rates on subsidized Stafford loans,
Congress can save college graduates thousands of dollars over the life of their
loans.
- • The
average four-year college student starting school in 2007 with subsidized
Stafford loans would save $2,280 over the life of his or her loans under
the proposed legislation.
- • When
the interest rate cut is fully phased in, the average four-year college
student starting school in 2011 with subsidized Stafford loans will save
$4,420 over the life of his or her loans.
About five and a half million students borrow subsidized
Stafford loans every year. Of those
borrowers, nearly three and a half million attend four-year public or private
non-profit institution. According to the
Congressional Research Service, 65% of traditional-age subsidized Stafford borrowers
come from families with incomes between $26,000 and $91,000. The median income for an American family of
four is $65,000.
“Lowering interest rates on loans is a great first step
towards a more affordable college education.
Congress should continue to help students pay for college by increasing
need-based federal student aid and passing broad protections for student borrowers,
such as limits on the percent of income that can be required for student loan
repayment,” concluded Swarthout.
The policy proposal analyzed by PIRG would cut the fixed
interest rate on subsidized Stafford loans for undergraduates from 6.8% to 3.4%
over the next five years. Loans
originated during the intervening five years will be set at fixed interest rates
of 6.12% in 2007-08, 5.44% in 2008-09, 4.76% in 2009-10, 4.08% in 2010-11, and
3.4% from 2011 forward. After
graduation, students would be able to consolidate their loans into one loan at
the weighted average of the interest rates of their various loans.
All federal Stafford loans receive two forms of government
support: the federal government covers the cost of the loans to lenders in case
of student default and provides financial subsidies to insure lenders make a
profit. Stafford loans are considered
“subsidized” when the government pays the interest charges on the loan while
the student is in school.
The House of Representatives is scheduled to vote on the
plan to cut interest rates during the first 100 legislative hours of the 110th
Congress.
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The State PIRGs are
non-profit, non-partisan public interest advocacy groups. The Higher Education
Project was established in 1994 to secure more aid for students, with a focus
on additional grants, reduced debt, and better service to students in the
federal financial aid system.
