Health & Fitness
What DOES the Student Interest Rate Freeze Really Mean?
For those families who are financially VERY needy, keeping the interest rate low and subsidized will not make a difference in the affordability of college.
This past week, so much of our nation was debating the merits of ObamaCare that the Stafford Loan Interest Rate Freeze just slipped under the radar. What does it mean, and who does it effect?
In a nutshell, what the media and government want us to focus on is the hype. This simply means that when students borrow a subsidized Stafford loan today, they pay only 3.4 percent interest when they start paying back the loan. Until then, the government subsidizes it. This will amount to around $70 per month in interest once the student starts paying the loan back. The problem is that many families borrow WAY more than the subsidized loan amount, and those loans are WAY more than 3.4 percent interest.
In fact, the two main differences I see between the mortgage meltdown and the future student loan meltdown is that with mortgages, the asset CAN be recovered by the bank and sold again. The borrower can also file bankruptcy to get out from under it. With student loan debt, there is no asset (no, a beach cruiser and a futon are not recoverable assets), and the loans will stay with you, even through bankruptcy, marriage, divorce, and foreclosure. In fact, the ONLY way to get out from under a student loan debt is through death. Not a good tradeoff.
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For those families who are financially VERY needy, this will not make a difference in the affordability of college. The government tends to make such a big deal about these perks (at taxpayers expense), yet is $70/mo really going to make a $25-50k a year college tuition more affordable? When the federal Pell grant was increased to $5,550/year, and because the budget crisis was threatened to be rolled back to 2008 levels, people were up in arms. Yet will $500/year really make college more affordable for a family only earning $23k a year?
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