Some
in Congress have proposed lowering student loan interest rates to reduce the
debt burden facing students and families.
This report addresses one specific proposal to cut interest rates on
undergraduate subsidized Stafford student loans in half, from 6.8% to 3.4%,
over a period of five years.
About
5.5 million students borrow subsidized Stafford loans every year. Of those borrowers, nearly 3.3 million attend
four-year public or private non-profit institutions. The vast majority of these borrowers come from
low- and middle-income families. According to the Congressional Research
Service, 75% of traditional-aged borrowers with subsidized Stafford loans come
from families with incomes below $67,374.
The median income for an American family of four is $65,000.
Congressional Proposal: Cut Interest Rates
in Half
Congressional
leadership has proposed cutting 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 would be set at fixed interest rates of 6.12% in 2007-2008, 5.44% in
2008-2009, 4.76% in 2009-2010, 4.08% in 2010-2011, and 3.4% from 2011
forward. After graduation, students could
consolidate their loans into one loan at the weighted average of the interest
rates of their various loans.
Findings:
Students Would Save Thousands of Dollars with Lower Interest Rates
By
lowering interest rates on subsidized Stafford loans, Congress can save college
graduates thousands of dollars over the life of their loans. We found:
• The
average four-year college student starting school in 2007 with subsidized
Stafford loans would save about $2,280 over the life of his or her loans under
the proposed legislation.
