President Barack Obama is expected to sign new student loan legislation this
week, making market-based interest rates the law of the land for federal student
loans and immediately lowering rates for borrowers," according to U.S. News & World Report. "While the compromise reversed the interest rate hike on subsidized
loans, which jumped from 3.4 to 6.8 percent on July 1, experts say the deal is a
mixed bag for students. Here is a rundown of the benefits and drawbacks of the
new student loan legislation.
The Good:
• Stability: Prior tweaks to student loan
interest rates were temporary and agreements to extend or reauthorize the
adjustments often led to political showdowns. 'The past couple of years we've
been in these situations where students haven't known up until the last minute
what their interest rate was going to be, because we were waiting for Congress
to act,' says Megan McClean, director of policy and federal relations at the
National Association of Student Financial Aid Administrators.
• Universal:
Last year Congress extended an interest rate reduction, but only for subsidized
Stafford loans, which are issued to students with financial need. The new
market-based plan lowers rates for all federal loans, which stood at 6.8 percent
for unsubsidized Stafford loans and 7.9 percent for PLUS loans. Any student
enrolled at least half-time in a degree-granting program is eligible for
unsubsidized loans, and PLUS loans are available to parents, graduate students
and those pursuing a professional degree. 'This is a deal that benefits all
borrowers,' says McClean, who points out that 80 percent of students who take
out subsidized loans also borrow unsubsidized funds.
The Bad
• Fluctuation:
Market-based interest rates are not static. As the economy improves, they will
rise, and experts predict that will happen quickly.
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