A
Congressional proposal to cut student loan interest rates in half will
save the average lower and middle income borrower $4,420 over the life
of their loans, according to a new report by the Illinois PIRG (Public
Interest Research Group).
The
Congressional proposal, which the House is expected to vote on next
week, would lower interest rates on undergraduate subsidized Stafford
loans over the next five years until they are cut in half to 3.4%
starting in 2011. In 2004-2005 more than 5.5 million students took out
subsidized Stafford loans to pay for college.
“Over
the past decade we have asked America’s college students to shoulder a
heavy burden of debt to pay for college,” said Faizan Shakeel,
President of the Undergraduate Student Government at the University of
Illinois at Chicago (UIC) and a member of the Illinois Student
Association. “Cutting interest rates on student loans will help
millions of lower and middle income students and their families by
saving them thousands of dollars in student loan payments.”
In
2004-5 thousands of students in Illinois at 4-year colleges took out
subsidized Stafford loans. The average UIC borrower graduated with over
$17,000 in loan debt.
By
lowering interest rates on subsidized Stafford loans, Congress would
save Illinois college graduates thousands of dollars over the life of
their loans:
- When
the interest rate cut is fully phased in, the average four-year college
student in Illinois starting school in 2011 with subsidized Stafford
loans will save $4,420 over the life of his or her loans.
About
5.5 million students borrow subsidized Stafford loans every year while
4,785 students at the University of Illinois at Chicago took out
subsidized Stafford loans in 2004-5. Of those borrowers, 3.3 million
attend four-year public or private non-profit institutions. According
to the Congressional Research Service, 75% of traditional-age
subsidized Stafford borrowers come from families with incomes of
$67,000 or less. The median income for an American family of four is
$65,000.
“Lowering
interest rates on loans is a great first step towards providing
students and families with a more affordable college education,” said
Tobi Erner, an advocate with the Illinois PIRG. “We are calling for
broad bi-partisan support for this policy and for Congress to continue
helping students pay for college by increasing need-based federal
student aid and by passing broad protections for student borrowers,
such as limits on the percent of income that can be required for
student loan repayment.”
The
policy proposal analyzed by Illinois PIRG would cut the fixed interest
rate on subsidized Stafford loans for undergraduates from 6.8% to 3.4%
over the next five years. Loans originated during the intervening five
years will be set at fixed interest rates of 6.12% in 2007-08, 5.44% in
2008-09, 4.76% in 2009-10, 4.08% in 2010-11, and 3.4% from 2011
forward. After graduation, students would be able to consolidate their
loans into one loan at the weighted average of the interest rates of
their various loans.
All
federal Stafford loans receive two forms of government support: the
federal government covers the cost of the loans to lenders in case of
student default and provides financial subsidies to insure lenders make
a profit. Stafford loans are considered “subsidized” when the
government pays the interest charges on the loan while the student is
in school.
The
House of Representatives is scheduled to vote on the plan to cut
interest rates during the first 100 legislative hours of the 110 th
Congress.
