Bill Passed to Cut Interest Rate on Student Loans In Half

The House of Representatives today passed a bill to cut the interest rates in half! Here are highlights from several online sources –

  • Over the period of next five years the interest rates will be reduced from the current rate of 6.8% to 3.4%. The interest rate reduction is expected to be as follows: 6.12% in 2007; 5.44% in 2008; 4.76% in 2009; 4.08% in 2010; and 3.4% in 2011.

  • The interest rate reduction applies only to need-based (subsidized) student loans.

  • The interest rate reduction is expected to benefit more that 2-million students.

  • According to an analysis by U.S. PIRG's Higher Education Project, a consumer advocacy group, someone starting school this fall with the average loan amount of $13,821 could save $2,280 over the life of the loan. Someone starting school after the cuts are fully in place could save upto $4,420.

  • Rate will go back up in 2012, unless congress votes for an extension.

  • The expected cost to the government due to this interest cut is 5.9 billion dollars.

  • The money needed to pay for the interest-rate cut will come from reducing the profit margin that the top private lenders receive on federal loans, reducing the amount government pays on defaulted loans and charging higher fees to the banks.

  • Lenders are NOT happy about this. Some fear that this may reduce the number of student loan options offered by lenders, and may be a BAD thing for the students!

Well, what do you think?

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