Low Rates For Student Loans

7 min read

We have a student loan crisis

The US government currently owns $1.6 trillion worth of student debt, and that number doesn’t even include private lenders who collectively own about $1 trillion in outstanding loans. That’s more than any country but the United States itself owes overseas. In fact, student debt now surpasses credit card debt and car loans combined — at least in terms of total dollar amounts owed. And just keep in mind that these numbers don’t take into account future interest rates, which economists expect to rise significantly over the coming decade.

Our college graduates need higher salaries

According to a 2018 report from the National Association of Colleges & Employers, college graduates earn, on average, $15,000 less per year than their non-college peers once they start working full time. That’s right; college graduates make, on average, $36k per year less than a high school graduate making $45k.

College tuition costs are soaring

It’s not even close to being a secret anymore that college tuition costs are rising faster than inflation, leaving many students graduating with a huge amount of student debt. According to the New York Federal Reserve Bank, nearly half of recent grads leave school with student loan debt – totaling roughly $37 billion dollars. That number could increase if Congress doesn’t act soon to rein in the rising cost of education.

But the student loan system isn’t fair to everyone

There are some students who aren’t responsible for their debt, either because they had financial hardship or were unable to pay back their loans after graduation. Those people rely on income based repayment plans, which cap borrowers’ monthly payments at 10% of their discretionary income, plus certain extra payments for taxes and insurance. Unfortunately, though, even under those programs, student loan companies charge a percentage of each payment; meaning that low-income borrowers actually end up paying a much larger share of their incomes toward their debts.

And the government hasn’t done anything to fix it

In 2017, lawmakers passed the Borrower Defense Unit Network Act (BDUNA), which established a single point of contact between federal student loan servicers and borrowers. The goal was to help alleviate the burden and confusion surrounding student loan claims while ensuring that legitimate cases receive proper assistance and compensation. Unfortunately, despite promises to improve existing protections and provide additional resources to the department, the Trump administration has failed to deliver.

So what can we do to address this issue?

We’re advocating for two things here. First, we support raising the minimum wage for workers across the board. As I’ve written before, studies show that increasing wages for low-wage workers would go a long way towards alleviating poverty and supporting families.

Second, we need to change the structure of student lending so that it works for regular Americans, not just giant corporations. Right now, student lending is designed for profit, not people and should be treated like a utility rather than a product that makes massive profits off of human misery. We should consider reorienting student lending models to prioritize affordability, accessibility, and sustainability over short term gains.

Low Rates For Student Loans

Federal Family Education Loan Program (FFELP)

The FFELP offers subsidized Stafford loans at rates below those charged by private lenders. Eligible borrowers may borrow up to $23,000 per year without payment of interest while enrolled. Unsubsidized and unsubsidized Stafford loan payments begin after graduation. The maximum amount borrowed for student loans under this program is capped at $23,000 annually. However, borrowers may choose to take out additional federal student loan funds under the William D. Ford Direct Loan Program.

Perkins Loans

These loans are designed for students attending post-secondary educational institutions including community colleges and vocational schools. A borrower’s eligibility for these loans is based upon his/her financial need and the availability of funds. Borrowers may not exceed the amounts permitted by law for each academic period. Interest accrues at variable rates depending on the term of the loan.

PLUS Loans

This program provides low-interest loans to parents who wish to help their children pay for college expenses. The parent co-signer must have a satisfactory credit history.

Loans are only offered to undergraduate and graduate students. No parental contribution is necessary.

Maximum loan limits vary according to family size. These loans may be extended beyond the completion of undergraduate study if the student chooses to continue to pursue higher education.

Health Professions Scholarship program

The program was created to provide scholarships to qualified medical students pursuing advanced degrees in medicine, dentistry, pharmacy or veterinary medicine. Scholarships range from $500 to $10,000 and may be renewable. Application forms are available online and materials are mailed directly to applicants’ homes.

Academic Competitiveness Grants

Grants are awarded to students participating in academic competitions or activities to assist them in preparing for competition. Preference is given to students competing nationally or internationally. Applicants must meet certain criteria outlined by the Department of Education.

Alternative Loan Programs

Alternative loan programs allow eligible borrowers to seek financing outside conventional channels. For example, some alternative lending products involve the purchase of insurance policies on the future earnings of borrowers or investments in small businesses. If a borrower defaults, the insurer may pay off the loan. Other alternatives include credit cards, personal loans and home equity line of credit.

Low Rates For Student Loans

The U.S. government just announced its plan to cut student loan rates for 10 years. However, many students have no idea about how their loans work and how much they pay each month. Here’s what we learned after talking to some of them.

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Low Rates For Student Loans

Higher education debt is going up at a rapid pace, leading many young people to face significant student loan debt after graduation. According to the Federal Reserve Bank of New York, the average student borrower owes $37,172 in college loans upon graduation, which represents a 35 percent increase since 2004.

College tuition costs have skyrocketed over the last few decades. Tuition hikes at public universities were among the fastest in recent years, jumping 13 percent between 2011 and 2012 alone, according to the Institute for College Access and Success. At private colleges, tuition prices increased 5.8 percent over that same time period.

A record number of students graduated with loans in 2013 — almost 6 million borrowers. That’s about 25 percent of total borrowers. Nearly 1 in 4 graduates (22 percent) owe more than $30,000 in student loans.

In 2015, the first year data was publicly available, the median amount owed by borrowers who had defaulted went up sharply, rising 11.8 percent from 2014 to $23,039, according to federal statistics provided by the Consumer Financial Protection Bureau.

About 7 million outstanding student loan balances carry interest rates higher than what the U.S. Treasury currently pays. These are known as “inactive loans,” though they could still technically go active at any moment if the borrower fails to pay back the money. When a borrower defaults, that means he or she stops making payments, and the unpaid balance becomes an obligation of the original lender. There is no grace period for these types of loans, meaning they’re due immediately.

Interest accrues on those loans even while a student is enrolled in school. The clock starts ticking when a student enrolls, not when he or she graduates. If a borrower does graduate, the amount owed gets reduced by the portion of the loan that the debtor paid off during college. But if the borrower doesn’t finish paying off his or her loans, the remaining amount grows larger each month until the debt is fully repaid.

More than half of all borrowers begin repaying their loans before they stop attending class, according to the CFPB. Many borrowers never make a single payment toward repayment. And some borrowers take out multiple loans, starting with lower-interest subsidized Stafford loans and then switching to unsubsidized private loans once the student no longer qualifies for more generous terms.

Borrowers in both public and private programs may apply for deferments. Public service loan forgiveness programs allow borrowers to temporarily suspend repayment obligations under certain conditions, such as working in low-income fields, volunteering for nonprofit organizations, or joining the military. Private lenders offer similar options. Deferment also helps borrowers keep their credit score intact while they work on eliminating their debts.

Most borrowers don’t realize they’re eligible for income-based repayment plans. Income-based repayment is an alternative to standard repayment that caps monthly payments based on household income. Eligible borrowers can choose either 10 years of Standard Repayment or 15 years of Graduated Repayment. Payments are adjusted annually based on the consumer’s income.

Even when borrowers do qualify for lower payments, they often find themselves struggling to pay off their debts. Borrowers with incomes below 150 percent of poverty level aren’t eligible for standard repayment and must instead opt for income-based repayment. While standard repayment requires borrowers to start repaying once they leave school, income-based repayment begins once they enter repayment. Once again, however, borrowers’ monthly payments are capped based on their income.

The average monthly payment for borrowers who choose to repay their loans entirely in 10 years is $1,094, according to the CFABS. That figure jumps to nearly $2,500 for borrowers who select 15 years of Graduated Refinance. By comparison, borrowers who have 10 years of Standard Repo can expect to pay $813 per month.

Only about two-thirds of borrowers who started repaying their loans in 2010 finished doing so before 2016, according to the CPABS.

Low Rates For Student Loans

This was posted by someone I went to high school with and who is now a teacher at my kids’ elementary school. He’s been working to get student loan rates reduced for students going back to college. If you’re taking out loans right now, please consider sharing this with your friends! We need everyone to share this and help him bring awareness to this cause. Thank you!

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