The House of Representatives passed a bill last week reducing borrowing costs for millions of students. The legislation links student loan interest rates to the financial markets, offering lower rates for most students now but higher ones for students in the future if the economy improves. The bill, which is now headed to the White House for President Obama’s signature, will lower interest rates for subsidized Stafford loans in the short term. These rates doubled to 6.8% on July 1 because Congress could not come to terms on a deal before the deadline.
Under the bill, undergraduates will be able to borrow at 3.9% for this school year, graduate students at 5.4% and parents at 6.4%. The rates would be locked in for that year’s loan. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money. The bill establishes a formula for student loan rates based on the interest rate on 10-year Treasury notes, so the rates will fluctuate with the market. Under current law, Congress sets interest rates on subsidized student loans. A deal in the Senate set a cap on interest rates. Interest rates would not top 8.25% for undergraduates. Graduate students would not pay rates higher than 9.5%, and parents’ rates would top out at 10.5%.
Click here to read more on the bill which reduces borrowing costs for students.
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