Senate proposing new caps on student loan interest rates

[lovelearning]

http://www.insidehighered.com/news/...ch-long-term-deal-student-loan-interest-rates

Thoughts? Obviously this hasn't made it that far yet, but I don't like the look of those caps. The graduate and Grad PLUS loan rates based on the current Treasury yield are lower than today's fixed rates, but it wouldn't take much fluctuation to turn that "relief" on its head.

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[Lesley]

The good news is there is a cap and, for now, the borrowing rates are low, lower than they have been recently. However, the cost of borrowing for education is increasing especially because the loan terms students are choosing, for whatever reason, are being extended raising the overall amount of interest on these loans to enormous levels. I don't think the economic environment is going to quickly improve, though likely to not get much worse, a stable sort of not that great, so interest rates should be subdued and student borrowing interest rates should remain low for sometime to come. Good if not great news!

 

[lovelearning]

The good news is there is a cap and, for now, the borrowing rates are low, lower than they have been recently. However, the cost of borrowing for education is increasing especially because the loan terms students are choosing, for whatever reason, are being extended raising the overall amount of interest on these loans to enormous levels. I don't think the economic environment is going to quickly improve, though likely to not get much worse, a stable sort of not that great, so interest rates should be subdued and student borrowing interest rates should remain low for sometime to come. Good if not great news!

Right--assuming the Treasury yield stays pretty low in the immediate future, this should help rather than hurt for now. (Except for those undergrads who recently had their loans fixed at 3.4%. I imagine we're going to start hearing even more about the diminished utility of private school degrees in majors like art history.)

Although the profession is in a state of flux with many changes already implemented or on the horizon, I am fascinated with medicine and couldn't see myself doing anything else. (I actually had some interest in dentistry a few years ago thanks to being able to shadow an MD/DDS oral surgeon, but soon found that I was MUCH more interested in the medical aspects of his job than the dental ones, and have enjoyed my exposure to medicine since then even more. I laugh to myself when people tell me I should've just gone into dentistry "for the money and lifestyle".) But since I won't have any support in paying my way through med school, I'm going to try to live like a resident as long as I can after residency to knock out those loans before the interest knocks me out. It seems like one of the biggest obstacles is a feeling of entitlement to an instantly much better lifestyle after many long years of training.

 

[Lesley]

http://money.cnn.com/2013/07/11/pf/college/student-loans/index.html

New deal hits snag as per article above.

The proposed rates for Stafford loans:

Undergraduate students an interest rate of about 1.8% plus the yield on the 10-year Treasury note, on Thursday, the note yielded 2.57%, for an interest rate of 4.37%

Graduate students an interest rate of 3.4% over Treasury notes for an interest rate of 5.97%.

The proposed cap would be 8.25% for undergraduates and 9.25% for graduate students.

And this would cost an extra 22 billion. I guess that indicates that the proposed interest rates are too low.

 

[survivordo]

We'll see - my gripe has never been having to take OUT student loans or even the amount of them. it is that the government has monopolized the situation and set ridiculously high interest rates. If I can get a car at 0.9% should my med school loans be at 8.5%??

Survivor DO

 

[VivaLaVida]

People like to make the argument that you can repossess a car but you can't repossess an education. Couldn't they just make it impossible to get a medical license or something if we stopped paying off our loans?

I wish that all federal loans wouldn't accumulate interest while in school...I'm in medical school...we do not have time to hold to a job to pay down interest. It's sickening that I am not only paying to be learning in the hospital but accumulating interest at the same time.

 

[sazerac]

If you are the lender, it is not in your best interest to destroy the one item (the medical license) that would allow the borrower to repay.

 

[SilverCat]

Bumping for the new bill about to pass.

From what I understand, grad loans will start at 5.4% and increase to 9.8%. I know it has been said that it will reach 9.8 % in 10 years. Does this mean that we can expect roughly a .45 increase in the interest rate each year?

For example:

2013-2014= 5.4%
2014-2015= 6%
2015-2016 = 6.4%
2016-2017= 6.8%

Or will there be more fluctuation, or a more rapid increase?

 

[DrMidlife]

The increases aren't automatic. The proposal is to tie them to a treasury lending rate, which is not constant, and can also go down. The Congressional Budget Office is predicting that 10 year treasury rates are going to rise, but that's a prediction, not a law.

This historical 10 year treasure rate chart is useful, but I have no idea how reliable: http://www.multpl.com/interest-rate/

And this chart is official and reliable, but you have to work to get the 10 year rate history out: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

And when we say a law is "about to pass" let's be realistic. The Senate passed a bill. Now the House has to pass it, which isn't a given.

From the senate.gov summary, HR 1911:

Bipartisan Student Loan Certainty Act of 2013 - (Sec. 2) Amends title IV (Student Assistance) of the Higher Education Act of 1965 (HEA) to set the annual interest rate on Direct Stafford loans and Direct Unsubsidized Stafford loans issued to undergraduate students at the rate on high-yield 10-year Treasury notes plus 2.05%, but caps that rate at 8.25%.

Sets the annual interest rate on Direct Unsubsidized Stafford loans issued to graduate or professional students at the rate on high-yield 10-year Treasury notes plus 3.6%, but caps that rate at 9.5%.

Sets the annual interest rate on Direct PLUS loans at the rate on high-yield 10-year Treasury notes plus 4.6%, but caps that rate at 10.5%.

Limits the applicability of the preceding provisions to loans first disbursed on or after July 1, 2013.

Fixes the interest rate on Direct Stafford loans, Direct Unsubsidized Stafford loans, and Direct PLUS loans for the period of the loan.

Sets the annual interest rate on Direct Consolidation loans for which an application is received on or after July 1, 2013, at the weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one-eighth of 1%.