The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
Despite the introduction of several bills to serve as a solution, lawmakers will leave for the week-long July 4 recess without implementing any of them, letting the July 1 deadline pass. Any students taking or renewing federal subsidized Stafford loans after that deadline can expect to pay, for example, an additional $3,000 on a $23,000 loan paid off over 10 years.
House Republicans passed the Smarter Solutions for Students Act on May 23, a measure that ties student loan interest rates to market-based rates. This plan would have reset student loan rates every year depending on the rate on U.S. Treasuries, which Senate Democrats claimed was too uncertain and with a cap of 8.5 percent, could push rates even higher than 6.8 percent.
Mitchell Weiss, a student debt expert and contributor to Credit.com, has been following the issue closely.
“The increase impacts the subsidized Stafford rates, which will now double to 6.8% — equal to that of the unsubsidized Stafford loans,” Weiss says. “Although the population of subsidized borrowers is smaller and the House can certainly act to remedy the situation retroactively, I’m actually more concerned about the series of House and Senate proposals that would index all student loan interest to the wrong Treasury note while subjecting the ensuing rate to an unreasonably high mark-up that’s intended to cover administrative costs that have yet to be vetted.”
President Obama called for a similar plan to the Smarter Solutions Act in his budget proposal in April, tying interest rates to yields on 10-year Treasuries, plus 0.93 percent for low-income students, 2.93 percent for other undergraduates, and 3.93 percent for graduate students and parent PLUS loans. Though both proposals promise lower interest linked to current market rates, many warn that families will pay more in the long run due to market fluctuations.
In contrast, Senators Kay Hagan (D-N.C.) and Jack Reed (D-R.I.) introduced an alternative that extends the current 3.4% rate for one year, offsetting this cost by closing tax loopholes on both inherited retirement funds and oil companies. A similar bill proposing a two-year delay failed under a Senate Republican filibuster earlier this month.
An additional, bipartisan deal introduced Thursday by Senators Joe Manchin (D-W.V.), Richard Burr (R-N.C.) and four others proposed setting interest rates at the Treasury 10-year note plus 1.85 percent. Under this plan, graduate loans would be market rates plus 3.4 percent, and parent PLUS interest at market rates plus 4.4 percent, with all loans at interest rates fixed for the life of the loan.
The Senate will vote upon reconvening on July 10, and can change student loan rates retroactively depending on their final agreement.
Image: iStockphoto
August 26, 2020
Student Loans
August 4, 2020
Student Loans
July 31, 2020
Student Loans