Accountability Clips

Facts on Student Loans & the Obama Economy

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Washington, Apr 25, 2012 | comments

Tough Times for Young Americans
For many young people, the Obama Economy contains little hope and few opportunities. Half of new college grads are now jobless or underemployed, and young adults are living with their parents at the highest rate since 1950.

Government subsidized loans have helped fuel skyrocketing college tuition costs – much like Fannie Mae, Freddie Mac, and the housing bubble – leading many young people who now cannot find jobs to borrow even more money to complete their education.

Students are borrowing twice what they did 10 years ago, and Americans now have more student loan debt than credit card debt. What these folks don’t have are jobs.

Current Debate Has ZERO Impact on $1 Trillion Already Borrowed
Some have proposed spending $6 billion to extend for 1 year the current 3.4% interest rate on certain student loans. As former CBO Director Douglas Holtz-Eakin and FinAid.org publisher Mark Kantrowicz have pointed out, this would ONLY affect new loans and ONLY affect subsidized Stafford loans.

In other words, adopting this proposal would have ZERO impact on the $1 trillion of student loans currently outstanding.

So what is the impact of this proposal? According to Holtz-Eakin at the link above, students taking out new, subsidized Stafford loans would save $7.00 per month on average. However, most borrowers would not see this impact for several years because payments are deferred until 6 months after graduation.

What Does Current Law Say About Stafford Loan Interest Rates?

According to FinAid.org: “The College Cost Reduction and Access Act of 2007 reduced the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. These reductions are available only to undergraduate students, not graduate students, and only for subsidized Stafford loans, not unsubsidized Stafford loans. The interest rates are illustrated in the following table.”

Phased-in Cuts in Interest Rates on
Subsidized Stafford Loans for Undergraduate Students

 Year

Interest Rate Subsidized Stafford Loans (Undergraduate Students)

Interest Rate Other Stafford Loans
(Graduate or Unsubsidized)

2007-08

6.8%

6.8%

2008-09

6.0%

6.8%

2009-10

5.6%

6.8%

2010-11

4.5%

6.8%

2011-12

3.4%

6.8%

2012-13

6.8%

6.8%

 

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