With the passage of the Bipartisan Student Loan Certainty Act by the U.S. Congress this summer, the interest rates on student loans will be tied to the financial markets and have an adjustable fixed rate.
This fall, interest rates on subsidized student loans for undergraduates will be set at 3.9 percent. That’s up 0.5 percent from the past two years when interest rates for all student loans were at 3.4 percent. Congress set rates on student loans for graduate students at 5.4 percent and parents at 6.4 percent. The law will cover more than 18 million loans, or about $106 billion in borrowed money this fall.
“Student loans pay for some of my tuition and all my books and some of my living expenses. I’m worried I’m going to come out of college with tons of debt and no job,” said Webster University junior Mike Ude.
Nationally, unemployment for college graduates was at 7.9 percent in 2013, according to a study from Georgetown University. Last year, the U.S. Department of Education reported 13.4 percent of student borrowers defaulted on their loans within three years of beginning payment. At Webster, 8.2 percent of borrowers defaulted from 2009-2012, or 389 borrowers out of nearly 5,100, according to the Education Department.
Data from 2010-2011 also reveals that Webster had 262 borrowers participating in the Parent PLUS loan program, with an average debt burden of $11,360 per borrower.
Earlier in the year, when Congress failed to reach an agreement on a long-term solution on student loan rates, interest rates for all loans doubled to 6.8 percent on July 1. The rate has since been lowered and the rates are now tied to the yields on 10-year Treasury bonds. By tying rates to Treasuries, interest rates will be susceptible to fluctuations in the financial market. Rates for undergraduates will be capped at 8.25 percent, graduate students at 9.5 percent and parents’ rates at 10.5 percent.
Eleven million students are expected to have lower interest rates this year, according to the Associated Press. The typical undergraduate this year will save $1,500 on student loan interest charges.
“I can’t afford to pay any more than I already do with school work. I already don’t have much time to work many hours,” Ude said.
The Associated Press also reported that interest rates are expected to rise in the coming years if congressional estimates of the 10-year Treasury notes prove true. The Congressional Budget Office, which examines the projected economic impact of congressional bills, estimates the federal deficit will be reduced by $715 million over the next decade because of the law.
James Myers, director of financial aid, said Webster students and parents should educate themselves about changing policies and rates to avoid student loan debt. Myers said students should attend the MoneyTalks programs, which provide information regarding student loans, financial aid and other living expenses for freshmen. MoneyTalks is part of the First-Year Experience programs.
“When you give a presentation and talk about finances, you have about 15 minutes and that’s about it. We have all these resources, and I can bring them to the water, but I can’t make them drink,” Myers said.
Myers encourages students to come to the financial aid office and talk about their financial aid and student loan concerns. The office will be distributing a survey to students with 44 questions. Myers said the study will be used to gauge student perception of the financial aid office.
Myers said he can provide information to students, but they have to take the time to read the information.