Good news for student borrowers: Congress has passed a measure
to preserve the 3.4% interest rate on subsidized Staffords, the
federally sponsored loans available to students who qualify for
financial aid. The rates were slated to double, to 6.8%, on July 1.
It's a financial win for students, no question, but don't get out
the party hats and confetti quite yet.
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First, the ruling doesn't affect the vast majority of borrowers.
Existing subsidized Staffords are unchanged, as are parent PLUS
loans (federally sponsored loans for parents) and unsubsidized
Staffords, which are already set at 6.8%. Unsubsidized Staffords
for grad students also remain at 6.8%.
The fortunate bunch -- the 7.4 million undergraduates poised to
take out subsidized Stafford loans this year -- won't suddenly be
flush with cash. Students who use subsidized Staffords to borrow
$5,500 (the maximum total amount for those loans) and then repay
the debt over ten years will save less than $11 a month, says Mark
Kantrowitz, of
Finaid.org
.
Some unfriendly changes to subsidized Stafford loans remain on
the books, including making grad students ineligible for those
loans and eliminating the six-month grace period before interest
kicks in. Instead, interest will start accumulating as soon as
borrowers graduate. (They will continue to have a six-month grace
period before they have to start repayment, however.)
Still, the rate freeze has an added advantage, says Pauline
Abernathy, of The Institute for College Access & Success. She
points out that a lower interest rate will steer student borrowers
away from private loans. "If the interest rate were to double, many
students might think that a private loan with a lower variable rate
is a better deal than a fixed federal loan," she says. (In fact,
even Staffords carrying a 6.8% rate are better than private loans
because the rate is guaranteed and the repayment terms are more
flexible.)
For borrowing strategies, check out our
tips for repaying student loans
and advice for
lightening the burden of loans
.