House OKs Student Loan Rates Tied to Treasury Yields (with Limits)

House OKs Student Loan Rates Tied to Treasury Yields (with Limits)The U.S. House approved a bill that would peg federal student loan interest rates to the yield on 10-year Treasury notes, creating some market-based uncertainty for millions of graduates — but adding maximum rate caps as a safeguard.
The measure passed 221-198. However, it faces a gloomy outlook in the Senate, where Majority Leader Harry Reid, of Nevada, has endorsed a different proposal that would extend the current fixed 3.4 percent rate on federally-subsidized Stafford loans for two years.
That rate is set to double to its previous 6.8  percent rate on July 1.
Currently, Congress sets the rates on federal student loans.
President Obama has said he supports a plan that would base rates on market indicators, but has not specifically endorsed the House bill.
The Republican-sponsored proposal that was approved Thursday would tie student loan interest to the prevailing rate on the 10-year Treasury Note, plus 2.5 percent.
For PLUS loans, 4.5 percent would be added to the 10-year T-note yield. It would set the maximum rate on Stafford loans at 8.5 percent and on PLUS loans at 10.5 percent.
The current rate for PLUS loans is 7.9 percent.
Federal PLUS loans are available to graduate or professional-degree students, and parents of dependent
undergraduate students, who need assistance in paying for education expenses. The U.S. Department of Education makes Direct PLUS Loans to eligible borrowers through schools participating in the Direct Loan Program.
The House bill also would eliminate the cap on the interest rate of consolidated loans that are originated on or after July 1, 2013; the current cap on the rate for consolidated loans is 8.25 percent.
House Democrats opposed the bill, citing a study that concluded students who borrow the maximum amount of subsidized Stafford loans over five years would pay $10,109 in interest payments under the Republican bill, compared to $8,808 if rates are allowed to double to 6.8 percent in July.

Leave a Reply

Your email address will not be published. Required fields are marked *