5 Solutions to the Subsidized Student Loan Debate | 06.14.13

Posted in Financial Aid, News, Stafford Loan, Student Loans By Student Loan Network Staff

Over the past month, you may have heard about the impending subsidized student loan interest rate increase, as politicians frantically work to come to a consensus before July 1. Right now, subsidized student loans interest rates currently stand at 3.4%, but will increase to 6.8% unless a new bill is passed by July 1.

With this decision having a major impact on your future, it is important to stay up to date with the issue and the suggested solutions.

1. Default Solution: Increase to 6.8%

As stated above, if politicians fail to come to an agreement, the interest rate for subsidized loans will increase to 6.8%.

2. Democratic Solution: Student Loan Affordability Act

Most Democrats in the House of Representatives argued for a two-year extension on the 3.4% interest rate, which would maintain the current interest rate and bring the question to Congress again in two years. However, this bill was rejected in the Senate on earlier this month.

3. Senator Elizabeth Warren’s Solution: Student Loan Fairness Act

Senator Warren proposed a bill which would dramatically cut the interest rate on subsidized loans. Citing the fact that the student loan debt now exceeds $1 trillion, Warren proposed cutting the interest rate to 0.75%, which is the same rate that banks are able to get from the government. For more information, please see our recent article on the details of Warren’s bill.

4. President Obama’s Solution: Treasury Note, Plus Margin, With Locked Rates

In April, Obama suggested setting interest rates at the cost of the 10 year treasury note, plus a 0.93% margin, with no cap on the maximum interest rate that students could pay. Obama’s bill also called for locked-in interest rates for the life of the loan, meaning that the interest rate that you pay today on the loan would be the same as the interest rate that you pay in 10 years.

5. Republican Solution: Smarter Solutions for Students Act

In mid-May, Congressman John Kline proposed the Smarter Solutions for Students Act, which was very similar to Obama’s suggestion. Kline’s bill would set the subsidized rate at the cost of the 10 year treasury note, plus a 2.5% margin, and would be capped at 8.5%. Obama, however, threatened to veto this bill if it passes in the Senate, pointing to the fact that the bill would fail to lock in interest rates for students. The bill was recently approved in the House of Representatives by a vote of 221-198, but was rejected by the Senate along with the Democratic solution above.

No matter which solution you support, it’s important to stay up to date with this issue, as it could have a large impact on your future. Leave your comments below with your thoughts on this issue.

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One Response to “5 Solutions to the Subsidized Student Loan Debate”

  1. Diana Goin says on July 22, 2013 at 2:51 pm:

    Have any changes been made on interest since Jul-1st-2013?

    Reply To This Comment

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