The senior Republican on the U.S. Senate education committee on Thursday announced an agreement had been reached by senators of both parties on a plan to lower interest rates for all students borrowing money for college this year.
Senator Lamar Alexander (R, Tn.) said, “Today’s bipartisan student loan agreement is terrific news for about 202,000 Tennessee borrowers who will be taking out nearly $1.8 billion to help pay for college costs next year.”
Elements of the agreement are as follows:
- Rates on every student loan made after July 1 will be reduced from 6.8 and 7.9 percent rates that are currently fixed in the law.
- All undergraduate loans will have the same rate, which this year is 3.86 percent, and will remain fixed for the life of the loan.
- The plan is simpler because all undergraduate loans—which are two-thirds of all student loans—will have the same low rate.
Senator Alexander said, “This plan is fair to taxpayers and fair to students. It comes as close as possible to not costing taxpayers and not charging students more than the cost of borrowing the money and administering the program.
“It’s realistic because it’s market-based, which means it’s based on what it costs the government to borrow money.
“The rates are fixed for the life of the loan, which provides certainty to students and parents.
“Finally, the plan is a long-term solution that will end the annual political saga of members of Congress jockeying for position to solve the student loans problem.”
The Bipartisan Student Loan Certainty Act requires that, for each academic year, all newly-issued student loans be set to the U.S. Treasury 10-year borrowing rate (specifically, the yield on the 10-year note as determined by the last auction held before June of each year—not the changing daily rate).
The resulting interest rates for loans taken out this year, after July 1, would be 3.86% for all loans for undergraduate students—both subsidized and unsubsidized. Rates would be 5.41% on unsubsidized loans for graduate students, and 6.41% on PLUS loans for parents and graduate students.
These rates would apply retroactively to newly issued loans taken out after July 1. The interest rate would be fixed over the life of the loan to provide borrowers with certainty to plan for the future. Additionally, this bill protects against the threat of unforeseen circumstances by imposing a cap to ensure interest rates never exceed 8.25% for undergraduate students, 9.5% for graduate students, 10.5% for PLUS borrowers. The Congressional Budget Office has determined this legislation would save taxpayers $715 million over ten years.
To learn more about the bill, click here.