President Obama signed legislation Friday to prevent federal student loan interest rates from doubling.
“In America, a higher education cannot be a luxury reserved for just a privileged few,” Obama said. “It’s an economic necessity that every American family should be able to afford.”
Here’s a breakdown of what student borrowers can’t afford not to know:
Unsubsidized, private loans not included
This new legislation has no effect on the estimated $168 billion in outstanding debt students have racked up through private loans. Interest terms for private loans are set by the lender and vary based on credit score or are fixed at an often high rate.
Unsubsidized loans are not issued based on financial need and students are responsible for repaying all interest accrued before and after graduation. The current rate for an unsubsidized loan sits at 6.8%.
Unsubsidized is the only type of Stafford loan for which graduate and professional students are eligible.
Subsidized rates hold steady
Subsidized Stafford loans are awarded to undergraduate students who show financial need. The government pays the interest while the student is enrolled in school. The rate for these loans will remain at 3.4 percent. Obama estimated that over 7 million students would have been hit with a whopping interest rate without the new bill. The spike would have tacked on an estimated $1,000 to the average loan repayment.
No more interest grace periods
Any subsidized loans issued during the 2012-2013 academic year will accumulate interest during the six-month grace period after graduation. The government will continue to cover the interest for students that borrowed before July 1. This practice is scheduled to resume within the next two years.
Only a temporary fix
On July 1 every year, planned changes to federal student aid go into effect unless last-minute action by Congress happens that changes the legislation before the president signs it. Students breathing a sigh of relief before borrowing more federal money should be aware that the rate freeze is only good for one year.
Next summer, it could be a whole new set of financial circumstances if the rate is scheduled to double again without a congressional reprieve this time.
Powered by Facebook Comments