(picture from flickr user thomashawk)

 

As reported in the New York Times, the student loan rate on new federal student loans is set to double. This may sound like a repeated story and that’s because, to some degree, it is. Last year, the rate was also set to double from 3.4% to 6.8% before Congress acted. However, the action that Congress took only extended the rate of 3.4% until July 1. Should no action be taken before that date, the student loan rate would automatically return to its old rate of 6.8%.

 

While keeping the low rate would help families, there are two other reasons why keeping the low rate is a good idea. First, as the New York Times points out, the 6.8% rate is actually an above market rate. For many families, there’s cheaper money to be found elsewhere if the sudent loan rate returned to that interest level. 

 

The other reason it makes sense to keep the lower rate? Because the student loans are already netting the federal government a profit. According to this CBO report on the Student Loan Program (Baseline February 2013), for the 2013 Fiscal Year, the Federal Government loaned out nearly $106 billion in student loans. The government actually made back its entire $106 billion AND another $38.6 billion from these loans. In 2014, while it won’t be quite as profitable, the Federal Government projects to make in excess of $34 billion on student loans.

 

As the New York Times rightly points out, there’s likely to be some ‘political brinksmanship’ on the issue. It should be noted that last year’s ‘political brinksmanship’ ended up harming many in that it ended all new subsidized loans for graduate students. That alone was predicted to add $7,000 in debt for every graduate student taking federal student loans. Other adverse changes in last year’s negotitions were:

  • for FAFSA qualifying, the automatic zero family contribution income level was reduced from $32,000 in family income to $23,000 in in family income, 
  • a two-year elimination of the postgraduation grace period for payments on Stafford Loans, and 
  • Pell Grants being limited to 12 full-time semesters.

 

If you’re concerned about what political brinksmanship with student loans rates could do to you and your student’s finances, your best course of action might be to contact your House Representative and your Senators. Should you e so inclined, use the links below to find your respective Congressperson’s contact information: