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Student loans stay down for now; future unsure

House approves bill tying rates to financial markets

POSTED: August 2, 2013 11:08 p.m.

All that’s left to lower borrowing costs to college students this year is President Barack Obama’s signature.

On Wednesday, the House of Representatives voted to approve legislation linking student loan interest rates to the financial markets. It’s good news for now, though interest rates will be higher when the economy improves.

This fall, loan interest rates for undergraduates will be at 3.9 percent, and graduate students will have rates at 5.4 percent. The interest rates are locked once the loan is taken out, but each year’s loan could be more expensive than the last.

“Going forward, the whims of Washington politicians won’t dictate student loan interest rates, meaning more certainty and more opportunities for students to take advantage of lower rates,” House Speaker John Boehner said.

University of North Georgia Financial Director Jill Rayner said while it is a positive development, it can pose a problem in the future.

“I do think this is a positive for the students who are currently attending school,” she said. She pointed out that rates could get higher for future generations if the Treasury bill goes up.

The 3.9 percent is higher than the previous rate of 3.4 percent, but significantly lower than 6.8 percent which was what the rate went to July 1 when Congress failed to act on the matter.

Interest rates would not top 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents’ rates would top out at 10.5 percent. Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.

The White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges.

Rayner advises parents and K-12 students who plan to attend to college to plan now for tuition and other fees.

“Start saving now, start looking for private scholarships now, start doing the research,” she said. For high school seniors, she said to apply for the Free Application for Federal Student Aid in January.

“It’s always better to plan ahead and have an action plan for attending school,” she said. “If rates do go down, or they do pass something that makes rates go down again, then the family will still have a plan (in place).”

Staff writer Carly Sharec and the Associated Press contributed to this story.


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