Yesterday President Obama signed a student loan bill, which will bring interest rates down for students beginning school this fall.
Student loan rates had doubled from 3.4 to 6.8 percent on July 1, and would have stayed there absent congressional action. Democrats tried to bring the rates back down to a flat 3.4 percent or decrease even lower, but were met with Republican opposition.
The new rate formula, which ties student loan rates to federal interest rates, will bring the rate down to 3.9 percent for undergraduates and 5.4 percent for graduates this fall, and will apply retroactively to any loans taken out after July 1. According to the White House, it will save students an average of $1,500 on loans they take out this year. Though it's good news for now, there are more fights ahead in the not-so-distant future. Read about the eventual rate increases, and what it means for Texas, after the jump. The floating rate is pretty good news for this year at a rate of 3.9 percent, though it's definitely less of a relief next year at 4.62 percent. Then it starts getting pretty high in 2015 at over 5 percent and fairly alarming by 2017, when it is expected to climb as high as 7 percent. CNN Money provided an analysis of what this rate will look like over the next few years:
We clearly haven't seen the end of the student loan rate battles, which we can hope and expect to see more of when student loan rates approach and even exceed the 6.8 percent rate that Congress worked to avoid this year.
In the meantime, though, the legislation will have a significant impact this year. According to NBC News, “In all, some 18 million loans will be covered by the legislation, totaling about $106 billion this fall. The Congressional Budget Office estimated the bill would reduce the deficit by $715 million over the next decade.”
In addition to bringing down the deficit, this bill will have other impacts on the economy. According to CBS News, a person with student loan debt is 36 percent less likely to own a home – an important factor as the housing market continues to recover.
We previously reported that in Texas, the average graduate under 30 makes $49,112 and has $22,600 in student loan debt. But skipping college altogether can be even worse, as bachelor degree holders earn 68 percent more than workers with only a high school diploma. While the new student loan bill won't improve this situation over what it is now, it will at least prevent the steep increase in rates that could put college out of reach for thousands more starting this fall.