A
Congressional proposal to cut student loan interest rates in half will
save the average lower and middle income borrower $4,420 over the life
of their loans, according to a new report by CALPIRG.
The
Congressional proposal, which the House is expected to vote on next
week, would lower interest rates on undergraduate subsidized Stafford
loans over the next five years until they are cut in half to 3.4%
starting in 2011. In 2004-2005 more than 5.5 million students took out
subsidized Stafford loans to pay for college.
"Today,
far too many Americans are holding off on college - or skipping it
altogether - because they can't afford it. As a nation, we simply
cannot allow the cost of college to prevent qualified students from
going to college," said Congressman George Miller (D-CA), Chair of the
House Committee on Education and the Workforce and author of the bill.
"That is why one of the first steps we will take in the new Congress
will be to cut interest rates in half on college loans. This is a key
part of Democrats' larger goal of strengthening America's middle class."
In 2004-5 228,489 California students at 4-year colleges took out subsidized Stafford loans. The average borrower graduated with
$15,125 in loan debt.
"Rising
student debt is a serious problem for thousands of students here in
California," said Molly James, a second year student at the University
of California, Berkeley. "High student debt can affect what jobs
students pursue after graduation, where they live and when they can
start a family. Lowering interest rates for middle class borrowers will
help make college more affordable for millions of American students and
family."
By
lowering interest rates on subsidized Stafford loans, Congress would
save California college graduates thousands of dollars over the life of
their loans: The average four-year college student in California
starting school in 2007 with subsidized Stafford loans would save
$2,490 over the life of his or her loans under the proposed
legislation. When the interest rate cut is fully phased in, the average
four-year college
student in California starting school in 2011 with subsidized Stafford
loans will save $4,420 over the life of his or her loans.
7,709
students at UC Berkeley took out subsidized Stafford loans in 2004-5.
The average UC Berkeley student starting school in 2007 with subsidized
Stafford loans would save $2,430 over the life of his or her loans
under the proposed legislation. When the interest rate cut is fully
phased in, the average UC Berkeley student in California starting
school in 2011 with subsidized Stafford loans will save $4,720 over the
life of his or her loans.
About
5.5 million students borrow subsidized Stafford loans every year. Of
those borrowers, 3.3 million attend four-year public or private
non-profit institutions. According to the Congressional Research
Service, 75% of traditional-age subsidized Stafford borrowers come from
families with incomes of$67,000 or less. The median income for an
American family of four is $65,000.
"The
U.S. can only stay competitive if we access the talents of our entire
population. Making college more affordable is an important way of
helping to ensure that we achieve this goal," said UC Berkeley
Chancellor Robert Birgeneau. "I commend Chairman Miller on his efforts
to reduce the debt burden on our students. I would also hope that
Congress will continue to help students pay for college by increasing
funding for need-based grant aid like the Pell Grant."
The
policy proposal analyzed by CALPIRG would cut the fixed interest rate
on subsidized Stafford loans for undergraduates from 6.8% to 3.4% over
the next five years. Loans originated during the intervening five years
will be set at fixed interest rates of 6.12% in 2007-08, 5.44% in
2008-09, 4.76% in 2009-10, 4.08% in 2010-11, and 3.4% from 2011
forward. After graduation, students would be able to consolidate their
loans into one loan at the weighted average of the interest rates of
their various loans.
All
federal Stafford loans receive two forms of government support: the
federal government covers the cost of the loans to lenders in case of
student default and provides financial subsidies to insure lenders make
a profit. Stafford loans are considered "subsidized" when the
government pays the interest charges on the loan while the student is
in school.
The
House of Representatives is scheduled to vote on the plan to cut
interest rates on Wednesday, January 17, during the first 100
legislative hours of the 110th Congress.
