10 Jun Student Loan Debt Impacted by New Legislation on Interest Rates by Jason Spencer Dallas
In recent weeks, U.S. legislators have been engaged in a heated discussion over the topic of student loan interest rates, which were expected to rise dramatically from a modest 3.4 percent to a whopping 6.8 percent. But President Barack Obama has signed a new bill into law which will drop those student loan interest rates to a more reasonable level — 3.86 percent for undergraduate students like Jason Spencer Dallas.
President Obama’s decision to sign off on the bipartisan bill, which was approved in the Senate with an 81-to-18 vote, comes as a relief to millions of students who are faced with repaying tens of thousands of dollars on their student loans.
The new 3.86 percent interest rate on federal undergrad student loans does reflect an increase from the prior rate of 3.4 percent, but it’s certainly preferable to the measure that would have doubled the rate to 6.8 percent, costing students hundreds — even thousands — more over the course of their student loan repayment period.
Notably, under the new law, student loans obtained by graduate students are subject to a higher interest rate of 5.41 percent.
Federal student loans and the degree to which the federal government subsidizes these loans has been the subject of tremendous debate in recent months. This particular piece of legislation applies to loans issued on or after July 1, 2013.
This new law also includes a measure that implements variable interest rates on undergraduate and graduate Stafford Loans, with an interest rate cap set at 8.25 percent for undergrads and 9.5 percent for graduate students.
The Stafford loan interest rate will now be revisited on an annual basis using a precise formula that entails considering the rate on ten-year Treasury notes, plus 2.05 percent for undergrads like Jason Spencer Student Loan Relief was.
The formula for determining the graduate Stafford loans entails taking the rate for high-yield ten-year Treasury notes and adding 3.6 percent to that figure.
While this new legislation means that student loans aren’t as high as they may have otherwise been, they are still rising which comes as unwelcome news to millions who are struggling and seeking student loan relief.
Approximately 37 million Americans owe more than $1 trillion dollars in student debt, with the government holding $864 billion of that $1 trillion dollar debt figure. Now, consider the fact that the class of 2012 owes, on average, $25,350 in student loans. But the average starting salary for 2012 college graduates was $44,482. That equation makes it extremely difficult for recent college graduates who are faced with paying hundreds on student loan payments each month. It’s a situation that’s led many to seek student loan relief help.
It’s important to remember that student loans cannot be discharged in a bankruptcy. This dates back to a 1976 Congressional decision, as legislatures believed that the ability to discharge student loan debt would result in a situation where graduates pursued bankruptcy as an alternative to paying their student loan debt.
In 2012, the U.S. Department of Education announced its Public Service Loan Forgiveness Program, which enables those who work full-time in a public service field such as teaching, social work, and nursing to seek student loan forgiveness. But this loan forgiveness is only available to those who have made 120 on-time payments — a feat that’s difficult for those who are struggling to make ends meet. The PSLF program is only applicable to William D. Ford Federal Direct Loans. These guidelines mean that this federal student loan forgiveness program is only useful to a very limited segment of students.
There are now an array of student loan assistance programs available via private employers, which offers some relief to students who are in debt. Others may opt to seek help via student loan consolidation programs and privately-run student loan assistance programs.