Student Loan Interest Rates: Financial Aid: Low-Income Students
The College Student Relief Act of 2007, recently approved by the U.S. House of Representatives, has been hailed as a savior for students trying to handle the ever-rising costs of college. Phased in over five years, the interest rate on federally backed loans will be cut in half, from 6.8 percent to 3.4 percent. But some say the cut isn’t the saving grace politicos make it out to be.
“Once fully phased in, these cuts would save the typical borrower, with $13,800 in need-based federal student loan debt, $4,420 in savings over the life of the loan,” says U.S. Rep. George Miller, D-Calif., of the House Committee on Education & Labor, relying on an analysis by U.S. PIRG. The new interest rate will drop to 3.4 percent by 2001, but on January 1, 2012 the rates will go back to 6.8 percent.
But U.S. PIRG, a public interest advocacy group, has said Miller’s office has misquoted its findings. Miller’s prediction assumes that the interest rate at its low of 3.4 percent will be permanent, although the act is scheduled to expire in 2012. A student with $13,800 in debt might save $4,420, but only if the rate was not scheduled to go back up to 6.8 percent in 2012.
Even if the 3.4 percent interest rate were to be extended, it would only help borrowers taking out loans in 2012 or later. Unlike a mortgage, when the rates drop, students with existing loans do not have the capability to re-finance at the new, lower rates.
