There was hope that Congress would have been able to prevent the interest rate on subsidized Stafford loans for undergraduates from doubling from 3.4 percent to 6.8 percent. The rate had been reduced several years ago to offer a break to students in a weak economy. It was set to expire last year, but Congress extended the reduction. In the meantime, legislators from both parties offered their own proposals for how to resolve the issue, but they all fell through. Here are five things to know about the higher rate.
(1) In the good news department, interest on subsidized Stafford loans does not begin accruing until after graduation. This is an enormous benefit to students because they usually do not repay their education loans while they are in school. Thus, the costs of the interest rate doubling will be much less severe than it could be.
(2) Subsidized Stafford loan borrowing is capped for undergraduate students, which limits the impact of the doubling. First-year students can borrow $3,500; second-years, $4,500, and third-years and beyond, $5,500. The aggregate limit, however, is only $23,000, so a student who graduates in four years exactly would have only $19,000 in debt. Students who start college this fall will bear the highest burden on the interest rate hike. All loans are subject to a 1.0 percent origination fee.
(3) Over the course of a standard 10-year repayment plan, the monthly payment on $23,000 at 3.4 percent is $226.36. At 6.8 percent, it’s $264.68, creating a $38.32 increase in monthly payments. Over ten years, this comes to $4598.77 total. For people who graduate with only $19,000 in subsidized Stafford loan debt, the monthly payment on 3.4 percent interest is $186.99, $218.65 at 6.8 percent, which creates a $31.66 increase in the monthly payment and $3,798.99 increase in total payments over ten years.
(4) Subsidized Stafford loans are eligible for the Income-Based Repayment plan, which caps monthly payments as a fraction of the standard 10-year repayment plan. For students with subsidized loans, the government will pay any unpaid interest each month for three years. This can create significant savings for students regardless of the interest rate.
(5) The interest rate doubling applies only subsidized direct Stafford loans, which are lent by the U.S. government. Unsubsidized Stafford loans are unaffected, as are PLUS loans, consolidation loans, and Perkins loans. Graduate and professional students are ineligible for subsidized Stafford loans. Private loans charge the market rate and usually require co-signors and do not offer an in-school deferment. However, some creditors, like credit unions, frequently offer better terms than the U.S. government and other private lenders do, but they are ineligible for Income-Based Repayment.
The increased loan rate probably won’t be that great a burden on college students who are eligible for Income-Based Repayment, but if your student loans are giving you a hard time, then you should discuss your options with an experienced Las Vegas bankruptcy lawyer.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.