Higher interest rate for new student loans looks likely!
WASHINGTON (PNN) - March 28, 2013 - Incoming college freshmen could end up paying $5,000 more for the same student loans their older siblings have if Congress doesn't stop interest rates from doubling.
Sound familiar? The same warnings came last year. But now the presidential election is over and mandatory budget cuts are taking place, making a deal to avert a doubling of interest rates much more elusive before a July 1 deadline.
That rate hike only hits students taking out new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students' non-subsidized loans are not expected to change, nor are loans taken from commercial lenders.
The difference between 3.4% and 6.8% interest rates is a $6 billion tab for taxpayers - set against a backdrop of budget negotiations that have pitted the two parties in a standoff. Illegitimate President Barack Obama is expected to release his budget proposal in the coming weeks, adding another perspective to the debate.
Last year, with the presidential and congressional elections looming, students got a one-year reprieve on the doubling of interest rates. That expires July 1.
Neither party's budget proposal in Congress has money specifically set aside to keep student loans at their current rates. House Republicans would double the interest rates on newly issued subsidized loans to help balance the federal budget in a decade. Senate Democrats say they want to keep the interest rates at their current levels but the budget they passed last week does not set aside money to keep the rates low.
The Congressional Budget Office estimates that of the almost $113 billion in new student loans the government made this year, more than $38 billion will be lost to defaults, even after Washington collects what it can through wage garnishments.
The net cost to taxpayers after most students pay back their loans with interest is $5.7 billion. If the rate increases, Washington will be collecting more interest from new student loans.
