Lower Interest On Student Loans

The Federal Government should lower interest rates on student loans

Student loan debt has been rising steadily over the past decade, and now stands at $1.5 trillion. In 2015, federal student-loan borrowers carried an average balance of about $28,400. But many students don’t feel they have much choice in their college decision because they fear not being able to pay back their loans. As a result, they often take out larger amounts of money than what’s really necessary. That’s partly due to confusing information about repayment — including some misleading statements from politicians claiming federal student loans would be forgiven after 10 years. (In fact, federal law requires that private lenders forgive any remaining balance if a borrower stops making payments.)

Some states provide free tuition; others offer tax breaks. Regardless, tuition costs continue to rise at schools across the country, leaving students with little wiggle room to afford college without taking out loans. To make matters worse, current rules mean that borrowers who take out federally subsidized loans to attend public colleges are eligible for higher monthly payments than those who borrow directly from banks.

The Congressional Budget Office estimates that extending the expiring income-based loan program, known as William D. Ford Direct Loan Program, could save taxpayers about $21 billion over the next decade. A separate bill in Congress would allow people who already graduated from school to refinance their loans. And President Trump’s budget proposal released last month included a provision to reduce interest rates on government-backed student loans to below the rate paid by commercial banks.

These ideas are certainly worth exploring. But before we try anything else, let’s examine how the current system actually works.

Federal student aid programs need reform

Most students rely on federal financial aid, whether loans or grants, to cover the cost of college. Undergraduate federal direct lending includes four major programs: Stafford Loans, PLUS Loans, Perkins Loans, and FFEL Pell Grants. Graduate scholarships, work study opportunity, military service obligations, and other types of non-need-based awards are also available.

Undergraduates whose families earn less than $65,000 a year and graduate students who live on campus may qualify for financial assistance under the Income-Based Repayment (IBR) plan.

If you do not meet these criteria, you may still be able to get a federal student loan — just not one financed by the U.S. Department of Education. These alternative options include private student loans, state education loans, and community/technical college loans. If you qualify and choose to apply for private student loans, you’ll find that lenders offer a wide range of variable and fixed rates, depending on your credit score.

Lenders sometimes offer special deals to first-time borrowers. However, the best way to avoid high fees is to enroll in an income-driven repayment plan. These plans require regular repayments based on your discretionary income instead of your total outstanding balances. You may be able to reduce your monthly payment if you commit to making smaller monthly payments each year until you reach the age of 25. After that, your payments will go down gradually.

But the existing federal loan programs aren’t perfect either. The amount of money you receive isn’t always enough to cover the full cost of attending school. Plus, there are hidden costs associated with student borrowing, such as higher loan default rates compared to private loans.

And while IBR was created to help struggling borrowers, it doesn’t address the root causes of student debt. Instead, IBR simply reduces the size of the monthly payment on federal loans after 10 years. Meanwhile, the average federal student loan debt ballooned to nearly $37,000 in 2016.

We need to reward students who excel academically

A big reason student debt is skyrocketing is that fewer students are graduating with debts in line with their abilities. According to data from the National Center for Educational Statistics, from 2005 to 2013, college graduation rates increased 2 percent among whites but declined 5 percent among blacks, 6 percent among Hispanics, and 8 percent among Asians.

Lower Interest On Student Loans

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Lower Interest On Student Loans

Description: Students who receive federal student loans can often find themselves saddled with interest payments that can reach hundreds of dollars per month. A bill introduced in Congress aims to change that by lowering the federal funding rate for these loans.

Author: “Rep. Ami Bera (D-CA)”

Image Credit: “Congressional Budget Office”

Publish Date: 2019-10-01

Lower Interest On Student Loans

No Child Left Behind Act

In 2001, Congress passed the No Child Left Behind Act (NCLB) which established annual goals for student achievement at regular intervals throughout elementary school. States have since been given flexibility over how they achieve these standards and what tests students need to pass to graduate high school. In 2008, President George W. Bush signed the Higher Education Opportunity Act (HEOA), which renewed the focus on college completion. The HEOA requires states to develop plans for increasing access to affordable higher education and provides federal funds to help schools implement them. The bill was initially opposed by conservative Republicans who wanted to cut spending and eliminate the Department of Education, but they were unable to get their way in Congress.

Common Core Standards

The Common Core State Standards Initiative, now known simply as the Common Core State Standards, was created in 2009. While the original goal of the initiative was to increase academic rigor across the country, it has become a political hot button issue. Many conservatives and opponents believe that the standards undermine local control of curriculum, promote socialist ideals, and erode parental authority. Despite opposition, many states have adopted the standards and some states have begun implementing reforms to make the system work better.

College Debt Burden

According to the Federal Reserve Bank of New York, the average amount owed on undergraduate loans doubled between 2000 and 2010. Between 2007 and 2012, average debt went up nearly $3000 per borrower. The financial burden of college has led to increased numbers of graduates defaulting on loans and filing for bankruptcy. According to the Institute of College Access & Success, 70 percent of students graduating with a bachelor’s degree are either unemployed or underemployed.

Lower Interest On Student Loans

What Is A Loan?

A loan is a type of financial aid provided by lenders to students or individuals that want to borrow money to help them pay for college expenses. Students who qualify for loans are called borrowers.

Types Of Loans

There are three main types of student loans: federal, private, and direct. Federal loans are administered by the U.S. Department of Education and include the Direct Subsidized Loan, which provides interest-free funds, and the Direct Unsubsidized (Stafford) Loan, which provides interest free funds for undergraduates while they are enrolled at least half time. Private loans fall under the category of alternative financing and may provide lower rates than federal loans. In addition, some private schools offer their own scholarships or grants to cover tuition costs. Direct loans are granted directly by banks and work similar to credit cards – you make payments directly towards your loan balance. You do not need to apply through a school or financial institution.

How Do I Get A Loan?

To get approved for a loan, you must complete the Free Application for Federal Student Aid (FAFSA). To determine if you are eligible for federal student aid, you must fill out the FAFSA. If you have any questions about filing the FAFSA, contact the Financial Aid Office in your home town. The deadline for submitting the FAFSA varies depending on whether you are applying for a subsidized or unsubsidized loan, and if you plan to attend school full-time or part-time. After completing the FAFSA, you will receive information regarding your eligibility and funding options.

Does My School Qualify For Grants?

Many colleges and universities offer grants – cash awards given directly to qualified applicants. These grants cover tuition costs, and therefore some students choose to forego taking out loans. However, grants only cover a portion of the total cost of attending a school.

Am I Eligible For Other Scholarships?

If you meet the necessary requirements, there are many scholarship opportunities available. Visit www.finaid.org/scholarshipsearch to search for scholarships based on your major, interests, race, gender, location, etc.

Can I Refinance My Loan?

Yes! Many people refinance their student loans each year in order to shave off a little bit of interest added on to the principal balance over the years. However, refinancing takes time as well as an approval. There are two types of refinancing: standard and consolidation. Standard refinancing simply lowers the rate while keeping the original amount outstanding. Consolidation combines several different types of federal loans into one single loan with a lower interest rate.

Should I Take Out Loans As An Alternative?

The best option is to take out no loans at all. While it is always possible to find a way to finance your education without borrowing money, doing so often puts you at risk of getting charged higher interest rates or having to pay back more money than what was originally borrowed.

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