Student Loan Deal Set To Increase Borrowing Costs, Swell Government Profit

by  and Ryan Grimm
Huffington Post
Posted: 07/18/2013 7:32 pm EDT
Updated: 07/18/2013 7:47 pm EDT 

student loan deal

WASHINGTON — A bipartisan Senate accord supported by the White House to overhaul the federal student loan program is forecast to boost government profit and increase borrowing costs in the coming years, leading student groups and some Democrats to denounce the deal.

The compromise, reached by eight senators and blessed by the White House on Thursday, would result in an immediate reduction in borrowing costs under the federal student loan program — temporary savings that would be paid by graduate students and parents beginning in 2015, according to estimates derived from the White House’s most recent budget update.

Some undergraduate students will immediately pay more relative to borrowing costs that prevailed during the most recent school year, while the vast majority are forecast to pay more in the next five years, perhaps as early as 2016.

Reluctant Senate Democrats, who had previously spurned bipartisan deals that would achieve the same effect as the agreement, were threatened by the White House to either support the compromise or risk being publicly blamed by the White House for allowing interest rates for some borrowers to soar, Democratic congressional aides said.

On July 1, the interest rate on undergraduate loans for borrowers in need, known as subsidized Stafford loans, doubled to 6.8 percent as a result of previous legislation. Though the rate hike was set to affect only a quarter of new federal student loans, it provided the impetus for a round of furious negotiations between Senate lawmakers and the White House to overhaul the student loan program, in part because no one wanted to be blamed for the increase in borrowing costs.

The result is a federal student loan system with loan rates tied to the federal government’s cost to borrow over 10 years, replacing a system with rates set by Congress. The White House had previously proposed such a system, as have Senate and House Republicans.

Senate Republican leader Mitch McConnell of Kentucky said Thursday that plans previously proposed by congressional Republicans and the White House were “strikingly similar.”

Many Senate and House Democrats, however, preferred a system tied to the government’s cost to borrow over a much shorter period, which would have resulted in cheaper rates for students and their families.

“What we’ll see is that a generation of students … will be paying a lot more for their student loans,” a result that will “add to the debt of these students and their families, and it will restrict their ability to become … not only qualified workers in our economy but also the people that drive the economy,” Sen. Jack Reed (D-R.I.) said on the Senate floor.

“This is not the right approach going forward,” Reed added.

In the upcoming school year, undergraduate students will pay 3.86 percent for Stafford loans under the government’s student loan program. Graduate students will pay 5.41 percent for Stafford loans, and 6.41 percent for PLUS loans, which are used to finance education costs after Stafford limits are exhausted. Parents who borrow to help their children attend college also will pay 6.41 percent.

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4 Responses to Student Loan Deal Set To Increase Borrowing Costs, Swell Government Profit

  1. Energy Doctor says:

    Thanks Jean. I have always been sympathetic when people mention preserving this world for their children and grandchildren. Now that we have a Grandchild on the way, I am driven to protect that child with my life.
    With chemtrails, GMO foods, vaccines etc…it is maddening. My sons are somewhat awake to what is happening but my Daughter in laws are not. Their present for the baby is a water filter to keep the flouride, heavy metals from this precious baby. I don’t know how the vaccine talk will go because these young women are so trusting of their doctors. Even though our Daughter in law was deathly sick from the iron pills the doctor prescribed when she had morning sickness and a viral flu and couldn’t keep anything down. Dr. clueless gave her iron pills to keep her and the baby strong but to take those pills you have to eat! but the iron pills were the problem and wouldn’t allow her to keep anything down. as soon as she quit the pills, she got better and started eating.
    Do I sound like an over the top Grandpa to be? Ha!
    Anyway, thanks for all you do. It’s good to get all tied up with life and put off the saving of humanity until tomorrow once in awhile. When that baby comes, I’ll need all of you to save the world while I practice being a Grandpa!
    Love to all!

    • Jean says:

      Doc, it’s tough, very tough to stay out out children’s lives and let them learn. . . This is about us, not them . . . My prayer is that this is coming down do rapidly that the problems you are facing will not be ones you have to live with. Hugs, ~Jena

  2. Energy Doctor says:

    This takeover of student loans by the Democratic administration was done by the current administrations demonization of the banks making so much money off of students. Since this administration took over the loans , they increased almost by double the amount of money students could borrow by inflating the amount students could borrow under the excuse that kids needed more opportunity that the banks would not allow and that a poor kid should be able to have money for living and personal spending while going to school.
    these borrowing students are now completely screwed by a Democratic administration that tightened the payback of these loans. Even if a student goes bankrupt, they still will owe the government forever….Now the government voted by both corrupt parties are raising the interest to complete the slave-hold of these loans on young people who were urged to borrow more and now the cost of borrowing will double.
    Senator Warren is doing a good job but the cows are already out of the barn. Another loan program that enslaves young people or bankrupts a nation (students borrowed a Trillion with a T dollars just last year).
    Neil Keenan, a global reset or something better be on the way or we are going to crash and burn sooooo bad! Of course, that was always the plan.
    Jean, kudos to you for the best organized site for good info about all levels of reporting…you are a lifeline.
    My oldest son and his wife just told us they are expecting our first grandchild and we are so happy. I pray daily that there will be a world worthy of these children.
    All Things Are Possible.

    • Jean says:

      It’s on it’s way – the better world for your grandchild – we’re in the process of birthing it right now. . . and you’re helping :) Hugs, ~Jena

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