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Student Loan Interest – The Decision

On July 24th Senate passed a bill finally reaching an agreement on setting student loan rates.  As mentioned in my original post the previously decreased student loan interest rate went back up to its original percentage of 6.8% for undergrad students.  Instead of the fixed rate system, with a necessary annual congressional agreement, the new rate will be tied to the 10-Year Treasury note rate plus 2.05% for undergraduates and 3.6% for graduate students.  Congress will no longer have to fix the interest rate every year since the new market-based system is tied to the governments cost of borrowing.  The bill also provides a ceiling to protect students from rate spikes.  The cap for undergraduates is 8.25%, 9.5% for graduates, and 10.5% for parents borrowing for their children’s college. Critics of this bill argue that overtime students will be paying much more in interest than they would if the fixed rate had stayed at its original 6.8% and that it does not offer enough protection to students as the economy improves and rates increase.  Regardless of these arguments, as the current rate this year is 3.86% for undergrads and 5.42% for graduates, students and parents seem to be relieved by the current rates and by the prevention of uncertainty created by an annual congressional agreement.  A retroactive fix has been incorporated for those affected by the 6.8% spike since July 1st.

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