With college costs rising, establishing a new benchmark for student loans can be a benefit to students. The Obama administration recently unveiled a proposal to tie the interest rate of student loans to the interest rate on 10-year Treasury bonds. For many students, this will lower interest rates on student loans and lower their overall payments.
The New York Times reports that the Obama administration’s budget calls for $1 billion in education funding plus changes to the interest rates charged for student loans. The funding is distributed between a new pre-kindergarten initiative, changes to Title I funding and initiatives for high school education. The major changes impacting higher education are tied to student loan interest rates.
Congress currently regulates the interest rate on student loans. Under the new proposal, the overall interest rate would tie to the 10-year Treasury note. Stafford loans, which are available for low- to middle-income students, would have an added 2.93 percent for unsubsidized loans and 3.93 percent for loans to graduate students and parents. The current Stafford loan rate of 3.4 percent is set to rise to 6.8 percent this summer unless the new plan is enacted. Currently, the 10-year Treasury bond rate is under 2 percent, but that number may rise over the next several years.
College costs across the nation vary. A report from the American Council on Education entitled “Putting College Costs Into Context” indicates that college costs start at around $3,000 for full-time undergraduate tuition at a community college and rise to nearly $30,000 for full-time undergraduate tuition at a private four-year institution. The same report indicates that although college costs have risen 22 percent over the past years, the actual amounts students pay has not gone up as much as it may seem, thanks to an increase in financial aid and federal aid.
A report called Losing Ground, published by the National Center for Public Policy and Higher Education, states that many American families are challenged by the rising cost of college tuition. Ensuring federal aid and lowered interest rates are two potential ways of making college more affordable, particularly for low- to middle-income students. The Bureau of Labor Statistics indicates that the jobless rate for people with a high school diploma was 8.1 percent in January 2013, compared to 3.7 percent for those with an undergraduate degree.
The proposed budget has not yet been passed and is currently under Congressional review.
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