Thursday, August 1, 2013

U.S. House Approves Student Loan Bill; Labrador, Simpson Vote Yes

Posted By on Thu, Aug 1, 2013 at 9:37 AM

Idaho Republican Reps. Raul Labrador and Mike Simpson joined a bipartisan majority July 31 in voting—391 to 31—to approve a bill that ends fixed interest rates for student loans. The bill has been sent to President Barack Obama for his approval, and he is expected to sign the legislation into law.

When it does become law, interest rates on government-sponsored student loans will be pegged to the yield on the 10-year Treasury note and will go up and down as the economy improves or slows down. Loans will be locked in for one year at a time. The interest rate for undergraduate Stafford borrowers will be 2.05 percentage points higher than the yield on the 10-year Treasury note. Graduate students will be charged interest of 3.6 percentage points more than the 10-year Treasury yield and parents will pay interest of 4.6 percentage points above the 10-year Treasury yield.

Interest rates will be capped at 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for parents.

The legislation would have an immediate impact on student borrowers, who saw loan rates double to 6.8 percent on July 1.

Undergraduates’ loans for the 2013-14 school year will come with a 3.9 percent interest rate for both subsidized and unsubsidized loans. Graduate students will pay 5.4 percent interest, and parents will borrow at 6.4 percent.

But while the legislation saves students from an interest rate hike now, some consumer advocates worry that it will result in ugly interest rates down the road.

"The bottom line is that students will pay more under this bill than if Congress did nothing, and low rates will soon give way to rates that are even higher than the 6.8 percent rate that Congress is trying to avoid," Chris Lindstrom, higher education program director for the consumer group US PIRG, told the Associated Press.

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