A
Congressional proposal to cut student loan interest rates in half will
save the average lower and middle income borrower $4,420 over the life
of their loans, according to a new report by PennPIRG.
The
Congressional proposal, which the House is expected to vote on next
week, would lower interest rates on undergraduate subsidized Stafford
loans over the next five years until they are cut in half to 3.4%
starting in 2011. In 2004-2005 more than 5.5 million students took out
subsidized Stafford loans to pay for college.
“Over
the past decade we have asked America’s college students to shoulder a
heavy burden of debt to pay for college,” said Stephanie Strab,
PennPIRG Citizen Outreach Director. “Cutting interest rates on student
loans will help millions of lower and middle income students and their
families by saving them thousands of dollars in student loan payments.”
In
2004-5 211,832 Pennsylvania students at 4-year colleges took out
subsidized Stafford loans. The average borrower graduated with $13,866
in loan debt.
By
lowering interest rates on subsidized Stafford loans, Congress would
save Pennsylvania college graduates thousands of dollars over the life
of their loans:
•
The average four-year college student in Pennsylvania starting school
in 2007 with subsidized Stafford loans would save $2,290 over the life
of his or her loans under the proposed legislation.
• When the interest rate cut is fully phased in, the average four-year
college student in Pennsylvania starting school in 2011 with subsidized
Stafford loans will save $4,440 over the life of his or her loans.
• 3,344 students at University of Pennsylvania took out subsidized Stafford loans in 2004-5.
• The average University of Pennsylvania student starting school in
2007 with subsidized Stafford loans would save $2,470 over the life of
his or her loans under the proposed legislation.
• When the interest rate cut is fully phased in, the average University
of Pennsylvania student starting school in 2011 with subsidized
Stafford loans will save $4,780 over the life of his or her loans.
About
5.5 million students borrow subsidized Stafford loans every year. Of
those borrowers, 3.3 million attend four-year public or private
non-profit institutions. According to the Congressional Research
Service, 75% of traditional-age subsidized Stafford borrowers come from
families with incomes of $67,000 or less. The median income for an
American family of four is $65,000.
“Lowering
interest rates on loans is a great first step towards providing
students and families with a more affordable college education,” said
Strub. “We call on members of the Pennsylvania Congressional delegation
to support this policy and for Congress to continue helping students
pay for college by increasing need-based federal student aid and by
passing broad protections for student borrowers, such as limits on the
percent of income that can be required for student loan repayment.”
The
policy proposal analyzed by PennPIRG would cut the fixed interest rate
on subsidized Stafford loans for undergraduates from 6.8% to 3.4% over
the next five years. Loans originated during the intervening five years
will be set at fixed interest rates of 6.12% in 2007-08, 5.44% in
2008-09, 4.76% in 2009-10, 4.08% in 2010-11, and 3.4% from 2011
forward. After graduation, students would be able to consolidate their
loans into one loan at the weighted average of the interest rates of
their various loans.
All
federal Stafford loans receive two forms of government support: the
federal government covers the cost of the loans to lenders in case of
student default and provides financial subsidies to insure lenders make
a profit. Stafford loans are considered “subsidized” when the
government pays the interest charges on the loan while the student is
in school.
The
House of Representatives is scheduled to vote on the plan to cut
interest rates during the first 100 legislative hours of the 110th
Congress.
