Washington, DC, July 18, 2013 -- Today, a group of U.S. Senators from both sides of the aisle introduced a compromise measure to lower interest rates for 100 percent of borrowers who have taken out, or will take out, a new federal student loan after July 1, 2013.
According to a statement released today by the Senate HELP Committee, the Act requires that for each academic year, all newly-issued student loans be set to the U.S. Treasury 10-year borrowing rate (specifically, the yield on the 10-year note as determined by the last auction held before June of each year—not the changing daily rate) plus add-ons to offset costs associated with defaults, collections, deferments, forgiveness, and delinquency. The resulting interest rates for loans taken out this year, after July 1, 2013, would be 3.86 percent for subsidized and unsubsidized loans for undergraduate students, 5.41 percent on unsubsidized loans for graduate students, and 6.41 percent on PLUS loans for parents and graduate students. These rates would apply retroactively to newly issued loans taken out after July 1, 2013. The interest rate would be fixed over the life of the loan to provide borrowers with certainty to plan for the future.
Additionally, this bill protects against the threat of unforeseen circumstances by imposing a cap to ensure interest rates never exceed 8.25 percent for undergraduate students, 9.5 percent for graduate students, 10.5 percent for PLUS borrowers. The Congressional Budget Office has determined this legislation would save taxpayers $715 million over ten years.
Justin Draeger, president of the National Association of Student Financial Aid Administrators (NASFAA), released the following statement regarding the compromise:
“The financial aid community is pleased to learn that lawmakers have reached a comprehensive, long-term solution on student loan interest rates.
This compromise would set interest rates based on market conditions and will ensure that federal student loans stay on par with—or cost less than—private education loans, which contain fewer safeguards for students and parents.
Interest rate caps will also ensure that loans remain affordable in the future.
NASFAA applauds President Obama's leadership on this issue, and thanks the sponsors of this bill for reaching a compromise that will benefit millions of students and families.”
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The National Association of Student Financial Aid Administrators (NASFAA) is a nonprofit membership organization that represents nearly 20,000 financial aid professionals at more than 3,000 colleges, universities, and career schools across the country. Each year, our members help nearly 15 million students receive funding for postsecondary education. In all, NASFAA member institutions served 97 percent of all federal student aid recipients in the US. Based in Washington, DC, NASFAA is the only national association with a primary focus on student aid legislation, regulatory analysis, and training for financial aid administrators. For more information, visit www.nasfaa.org.
Publication Date: 7/18/2013