Cost Looms Large for Obama’s Student Loan Interest Rate Cut

Last week President Obama called on Congress in his State of the Union address “to stop the interest rates on student loans from doubling in July.” That line surely left a lot of people (Washington’s education policy circles not included) wondering what in the world the president was talking about. Is Congress really planning to double the interest rate on federal student loans this summer? The answer is yes, no, and maybe. In other words, it’s complicated. What’s more, a newly released estimate from the Congressional Budget Office shows that the cost of the president’s request will weigh heavily in any debate on the proposal.

Interest rates on Unsubsidized Stafford student loans, which are federal loans available to all students, issued for this academic year (2011-12) are fixed at 6.8 percent. The same rate has been charged on these loans issued since July of 2006. However, the interest rate is fixed at 3.4 percent for a subset of federal student loans – Subsidized Stafford loans for lower-income undergraduate students – issued this academic year. That rate is only temporarily available, and beginning in the 2012-13 academic year, the rate on that subset of loans will be the same as for Unsubsidized Stafford loans, 6.8 percent. So yes, rates are set to double for newly issued loans made to a subset of undergraduates after July 1, 2012.

Click here to read this full post on Ed Money Watch…