It’s July 1st … the day when student’s notice that the cost of higher education is changing.
For Minnesota students, the Minnesota Legislature increased funding for two-year colleges to allow a one-year tuition freeze, followed by a 1-percent reduction in tuition the following year. But in-state students at the University of Minnesota will pay 1.5 percent more in tuition this fall, while tuition will go up by 7 percent for out-of-state students.
And for students relying on student loans who have been worried the Federal Reserve will raise interest rates during 2015 are sighing with relief — they dodged a bullet.
First a little “history lesson” :
In 2007, the College Student Relief Act of 2007 was approved with Republicans voting in favor 124 to 71, gradually reducing (over five years) the interest rate on subsidized Stafford loans provided to undergraduate students from the fixed interest rate of 6.8% to:
July 1, 2007 – July 1, 2008: 6.12%
July 1, 2008 – July 1, 2009: 5.44%
July 1, 2009 – July 1, 2010: 4.76%
July 1, 2010 – July 1, 2011: 4.08%
July 1, 2011 – Jan. 1, 2012: 3.40%
With 2012 being an election year, Mitt Romney and President Obama agreed that rates should not rise, and urged Congress to extend the 3.4% rate through June 30, 2013.
Oops … forgot to mention one important fact … John Kline opposed the College Student Relief Act of 2007 and really wasn’t happy with having to extend the 3.40% rate.
President Obama included in his FY2014 budget request student loan rates that would be aligned with interest rates for 10-year Treasury bonds plus 0.91% to compensate for processing. So that borrowers can afford their loan payments, President Obama envisions expanded income-based repayment program … thus borrowers’ repayment would be factored based to their discretionary income and forgives the debt after 20 years.
Chairman John Kline liked the idea of tying the interest rate to the Treasury bond rate (but not the other parts) … and offered his own bill — The Smarter Solutions for Students Act — which proposed that Stafford loan interest rates be calculated each year based on the 10-year Treasury Note, plus 2.5 percent.
So in concept there was agreement … the only difference was would the US Government make money on students ?
None or 1.59% ?
The US Senate rejected Chairman Kline’s 2.50% rate and passed a 1.90% “processing fee” … only to have that rejected by Chairman Kline and eventually, they compromised at 2.05%.
Thus, these loans will now be linked to the financial markets, specifically to the 10-year U.S. Treasury plus a handling fee … for example, undergraduate Stafford (2.05 percentage points above the base rate); graduate Stafford Loan (3.6 percentage points); and PLUS Loan (4.6 percentage point).
The Congressional Budget Office estimated that the government will generate $184 billion in profits from its college loan programs over a decade.
OK … history lesson is over … as the financial markets are jittery over Greece and the Federal Reserve pondering when to raise interest rates, the new student loan interest rates are out for loans issued after today :
■ 4.29% for Stafford loans for undergraduates, both subsidized and unsubsidized. That’s down from 4.66% for loans issued in 2014-15.
■ 5.84% for Stafford loans for graduate students, down from 6.21% for loans issued in 2014-15.
■ 6.84% for Parent and Graduate PLUS loans, down from 7.21% for loans issued in 2014-15.
“Lower interest rates are great news for students who need loans this coming school year,” Lauren Asher, president of the Institute for College Access and Success, a nonprofit that advocates for better student loan policy. “However, the Congressional Budget Office projects much higher rates next year.
Yep, it’s great that interest rates are lower … but that doesn’t change the fact that US Treasury is still earning 1.04% profit … and if the CBO is correct that rates will rise next year, the US Treasury will still be earning that same 1.04% profit … and that’s thanks to John Kline.
Think about it … the rate before was 3.40% now it is 4.29% … if the government was not making a profit on the loans, the rate would be 3.25% !
When President Obama signed the legislation, he said :
Last point I’ll make, and I suspect the Senators and Congressmen behind me will agree with this, even though we’ve been able to stabilize the interest rates on student loans, our job is not done, because the cost of college remains extraordinarily high. It’s out of reach for a lot of folks, and for those who do end up attending college, the amount of debt that young people are coming out of school with is a huge burden on them; it’s a burden on their families. It makes it more difficult for them to buy a home. It makes it more difficult for them if they want to start a business. It has a depressive effect on the economy overall. And we’ve got to do something about it. So I’m going to be looking forward to engaging this same coalition to see if we can continue to take additional steps to reform our higher education system
Sadly, Chairman Kline seems to believe that his job is done … he has ignored 165 co-sponsors of H.R.1434 – Bank on Students Emergency Loan Refinancing Act refusing to hold a hearing or allow a vote. Heck, Chairman Kline has let H.R. 1352: Student Loan Borrowers’ Bill of Rights Act of 2015 just lay in his “in-box” for over three months with no action.
A change in policy will only happen with a change in representation … this must be John Kline’s last term.