In an effort to strengthen the economy and ease the burden of student debt on families nationwide, U.S. Senator Jack Reed (D-RI) and U.S. Representative Joe Courtney (D-CT) today joined with student advocacy groups Young Invincibles and the National Campus Leadership Council, and college student body presidents from the Big Ten and campuses across the country, to announce new legislation to ensure the interest rate on subsidized Stafford student loans for undergraduate students do not dramatically increase this year.
The current fixed interest rate on Stafford federal subsidized loans is 3.4 percent, but that rate will double to 6.8 percent on July 1, 2013 unless Congress takes action. However, Congress is not expected to begin consideration of the reauthorization of the Higher Education Act, the primary law governing federal investment in higher education, until after the "doubling" deadline.
The Reed-Courtney legislation would lock in lower rates for two years while Congress works on a long-term solution to slow the rapid accumulation of student-loan debt.
"Congress must work together to address the student loan crisis. A college education is an important investment for both individuals and America's global competitiveness. We need a better educated, better trained workforce. But the rising tide of student loan debt -- which has now crested above $1 trillion -- is putting a college education out of reach for some and affecting the life trajectory of young people and our economic future. It is in our national interest to try and keep student loan rates low and college more affordable," said Senator Reed. "While we work toward a viable long-term solution, it is vitally important Congress stops the interest rate hike on July 1st. This is a sensible, short-term fix that buys some time to enact long-term changes that make sense for both students and taxpayers. Any long-term solution should include a cap to limit how high student loans rates can go."
"A college education is key to success in today's economy, but for many students, the spiraling costs of higher education are creating an immense barrier and impacting real-life decisions like when to get married or whether to buy a house," said Congressman Courtney. "Last year, with a tremendous push from students across the country, we successfully postponed the interest rate from increasing. Unfortunately, we are again staring down a July 1 deadline to act. This legislation will not only defuse the ticking time bomb and provide certainty for two years, but it will also provide the Congress with time to craft a thoughtful long-term solution to address this growing problem that is weighing down young people as they enter the workforce."
Research by FICO Labs found that in 2005 the average student loan debt was just over $17,000. In 2012 it rose above $27,250 -- a 58% increase in just seven years. And according to the New York Times: "Student loan borrowers graduate with an average debt of $27,000, and the scheduled interest rate increase on subsidized Stafford loans would cost almost 10 million borrowers about $1,000 more over the life of their loan, for each year of college."
Reed and Courtney noted that high student loan interest rates create a drag on our economy. As student loan debt has risen, home ownership and car ownership have declined for young households. Keeping the cost of borrowing low will help reduce the amount students owe and help give them purchasing power that can improve our overall economy.
It is estimated that maintaining the current 3.4 percent interest rate for two years will "score" about $8.3 billion. However, the student loan program currently generates savings in the federal budget, with the Congressional Budget Office (CBO) estimating that the subsidized loan program will save $13.90 for every dollar borrowed in Fiscal Year 2013, and $12.49 for every dollar borrowed in Fiscal Year 2014.