Congress Resolves Issues of Student Loan Rates

On Wednesday, the U.S. Congress passed the Bipartisan Student Loan Certainty Act of 2013 which lowers student loan rates by tying them to market conditions. President Obama has expressed that he will sign the bill as soon as it reaches him.

The overwhelming vote in Congress was 392 for and 31 against. It resolves a dispute between Democrats and Republicans that resulted in student loan rates doubling on July 1 of this year.

The bill will replace the prior system of setting student loan rates and is just in time for students returning to school this fall.

Stafford Loan borrowers will pay 3.9% with a cap rate of 8.25% (graduate cap rate will be 9.5%). PLUS Loan borrowers will pay 6.4% with a cap rate of 10.5%.

As the market improves, these rates will rise but they are capped so that no family is adversely affected by rate spikes.

The rates are tied to the U.S. Government’s cost of borrowing (Treasury Bonds).

The measure came just in time as Congress was set to go on recess Friday. It also resolves a dispute that has been going on in Congress for several months.

Disagreements between Democrats and Republicans over how to set rates resulted in a failure to reach an agreement on July 1 of this year. July 1 was the deadline for the rates in effect at that time. After that they were set to double.

Since no agreement was reached by the deadline, the rates for subsidized Stafford Loans doubled from 3.4% to 6.8%.

From 2002 until 2007, student loan rates were based on the financial market until they expired in 2012. At that time, Congress passed a one-year extension until July 1, 2013 to retain the lower rates while they try to reach an agreement.

President Obama wanted rates to be based on market conditions but disagreements caused Congress to delay resulting in the missed deadline.

The bill puts more certainty in setting rates which is what the President wanted.

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Posted by on Aug 1 2013. Filed under Finance, New. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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