Effect of possible student loan legislation this summer Forum

[thatmanheisapoet]

Student loan legislation could be on the horizon that'll bring the interest rates for the subsidized loan down from 6.8%.

The Hill - House GOP, Senate Dems trade barbs over student loan rates

The Economist - Student loans, Degrees of debt: The phoney debate over student loans

But since they've missed the July 1 deadline, I am wondering if it can have any effect on loans this year. Anyone know?

The main thing I am wondering about is whether or not I should wait to apply for student loans until Congress settles the issue. I don't want to get a 6.8% loan when, if I waited, I could have gotten one for lower. I'm pretty sure it doesn't work like that, but it'd be a pretty costly mistake. So I just want to make sure.

[Joe Quincy]

Grad loans have always been at 6.8%. The fight is over the rate for undergrad loans.

[thatmanheisapoet]

Grad loans have always been at 6.8%. The fight is over the rate for undergrad loans.

The Subsidized Stafford Loan rate just increased on July 1 from 3.4% to 6.8%. http://www.studentloannetwork.com/tips/

So our Subsidized Stafford Loan rate was always 6.8%?

[rinkrat19]

Grad loans have always been at 6.8%. The fight is over the rate for undergrad loans.

The Subsidized Stafford Loan rate just increased on July 1 from 3.4% to 6.8%. http://www.studentloannetwork.com/tips/

So our Subsidized Stafford Loan rate was always 6.8%?

Yes. 3.4% was only ever undergrad loans. Grad students don't get subsidized Stafford; only unsubsidized. Believe me, I've got the loan statement to prove it.

[Joe Quincy]

Grad loans have always been at 6.8%. The fight is over the rate for undergrad loans.

The Subsidized Stafford Loan rate just increased on July 1 from 3.4% to 6.8%. http://www.studentloannetwork.com/tips/

So our Subsidized Stafford Loan rate was always 6.8%?

Yes. 3.4% was only ever undergrad loans. Grad students don't get subsidized Stafford; only unsubsidized. Believe me, I've got the loan statement to prove it.

Well, we did get subsidized a few years ago...but it was still 6.8%.

[thatmanheisapoet]

Alright, thank you

[rinkrat19]

Grad loans have always been at 6.8%. The fight is over the rate for undergrad loans.

The Subsidized Stafford Loan rate just increased on July 1 from 3.4% to 6.8%. http://www.studentloannetwork.com/tips/

So our Subsidized Stafford Loan rate was always 6.8%?

Yes. 3.4% was only ever undergrad loans. Grad students don't get subsidized Stafford; only unsubsidized. Believe me, I've got the loan statement to prove it.

Well, we did get subsidized a few years ago...but it was still 6.8%.

Oh, that's right.
Before my time, unforch.

[polareagle]

Actually, if you look at the text of HR 1911, the student loan bill that the House passed, it seems to apply to ALL stafford loans, both subsidized and unsubsidized, for grads and undergrads. It is true that the senate stopgap bill (which would have kept things as they are for 1 year) would only have gone for undergrads but this one seems to apply to everybody.

That being said, this bill would likely be worse for students in the longer term (though pretty good for those of us in the class of 2016) and is unlikely to be passed or even taken up by the Senate.

ETA: Also, while this bill could be good or bad for people staking out stafford loans (depending upon how high you think interest rates will go during your repayment period), it will almost definitely be worse for parents and grad students taking out PLUS loans, which will be allowed to float to an interest rate as high as 10.5%.

ETA2: It's also funny (sad?) how almost nobody writing about these bills seems to know a thing about how student loans work. A lot of articles and press statements reference the stafford loans as "undergraduate" loans (even though the bill itself makes no distinction b/w graduate and undergraduate staffords), while they nearly universally refer to the PLUS loans as "graduate" loans (even though a significant portion of PLUS loans are taken out by undergrad parents).

[tennisking88]

Actually, if you look at the text of HR 1911, the student loan bill that the House passed, it seems to apply to ALL stafford loans, both subsidized and unsubsidized, for grads and undergrads. It is true that the senate stopgap bill (which would have kept things as they are for 1 year) would only have gone for undergrads but this one seems to apply to everybody.

That being said, this bill would likely be worse for students in the longer term (though pretty good for those of us in the class of 2016) and is unlikely to be passed or even taken up by the Senate.

This is right. The GOP bill would tie the Stafford rate to the 10-yr treasury bond rate, which at this point is about 3x less than the 6.8% we pay now. The downside is that as interest rates go up, that would really screw over students. Which is why the smart thing to do would be to CAP the interest rate at 6.8%. Though that idea is probably not feasible because it will increase the deficit and Congress will not agree how to finance it because they don't know how to finance anything.

[Joe Quincy]

Actually, if you look at the text of HR 1911, the student loan bill that the House passed, it seems to apply to ALL stafford loans, both subsidized and unsubsidized, for grads and undergrads. It is true that the senate stopgap bill (which would have kept things as they are for 1 year) would only have gone for undergrads but this one seems to apply to everybody.

That being said, this bill would likely be worse for students in the longer term (though pretty good for those of us in the class of 2016) and is unlikely to be passed or even taken up by the Senate.

This is right. The GOP bill would tie the Stafford rate to the 10-yr treasury bond rate, which at this point is about 3x less than the 6.8% we pay now. The downside is that as interest rates go up, that would really screw over students. Which is why the smart thing to do would be to CAP the interest rate at 6.8%. Though that idea is probably not feasible because it will increase the deficit and Congress will not agree how to finance it because they don't know how to finance anything.

Capping it would make no sense from an economic perspective. The point of tying the rate is to allow the rate to float with the market. Capping would allow you to have the benefit of low rates without ever having the potential burden of higher rates. The fact that you can borrow student loan rates so low is stupid...and the reason people take out way too much thereby allowing tuition to soar.

Its even more stupid to lower undergrad rates since they have the highest default rate. They are riskier credit and therefore should cost more to obtain. Not everyone needs to go to college and if we want to permit poor people to go, making it cheaper for them to get hopelessly in debt makes little sense. The practical reality is that a bachelors degree no longer guarantees a salary sufficient to pay back that debt regardless of your background.

[polareagle]

Actually, if you look at the text of HR 1911, the student loan bill that the House passed, it seems to apply to ALL stafford loans, both subsidized and unsubsidized, for grads and undergrads. It is true that the senate stopgap bill (which would have kept things as they are for 1 year) would only have gone for undergrads but this one seems to apply to everybody.

That being said, this bill would likely be worse for students in the longer term (though pretty good for those of us in the class of 2016) and is unlikely to be passed or even taken up by the Senate.

This is right. The GOP bill would tie the Stafford rate to the 10-yr treasury bond rate, which at this point is about 3x less than the 6.8% we pay now. The downside is that as interest rates go up, that would really screw over students. Which is why the smart thing to do would be to CAP the interest rate at 6.8%. Though that idea is probably not feasible because it will increase the deficit and Congress will not agree how to finance it because they don't know how to finance anything.

Capping it would make no sense from an economic perspective. The point of tying the rate is to allow the rate to float with the market. Capping would allow you to have the benefit of low rates without ever having the potential burden of higher rates. The fact that you can borrow student loan rates so low is stupid...and the reason people take out way too much thereby allowing tuition to soar.

Its even more stupid to lower undergrad rates since they have the highest default rate. They are riskier credit and therefore should cost more to obtain. Not everyone needs to go to college and if we want to permit poor people to go, making it cheaper for them to get hopelessly in debt makes little sense. The practical reality is that a bachelors degree no longer guarantees a salary sufficient to pay back that debt regardless of your background.

Two problems with this. First, the government is not a business and should not be tying to make money. Student loans are a public good and were designed that way. Should there be caps on the AMOUNT that students can take out? Sure. That might encourage schools to look at lowering tuition costs. But as history has shown, people will bury themselves under high-interest student loan debt without a second thought. Unfortunately, it is the high interest rate that prevents many from repaying it (if you can't ever make a dent in the principle and are always paying off interest, you lose the incentive to pay at all). Lower interest rates (along with, perhaps, a stricter cap on the amount of total loan debt) would increase the number of loans that are being repaid.

Second, let's not pretend that the loans exist in any type of market system even when we're talking about private issuers. Student loans are non-dischargeable unlike nearly any other type of debt. These are not normal market conditions.

[Joe Quincy]

Actually, if you look at the text of HR 1911, the student loan bill that the House passed, it seems to apply to ALL stafford loans, both subsidized and unsubsidized, for grads and undergrads. It is true that the senate stopgap bill (which would have kept things as they are for 1 year) would only have gone for undergrads but this one seems to apply to everybody.

That being said, this bill would likely be worse for students in the longer term (though pretty good for those of us in the class of 2016) and is unlikely to be passed or even taken up by the Senate.

This is right. The GOP bill would tie the Stafford rate to the 10-yr treasury bond rate, which at this point is about 3x less than the 6.8% we pay now. The downside is that as interest rates go up, that would really screw over students. Which is why the smart thing to do would be to CAP the interest rate at 6.8%. Though that idea is probably not feasible because it will increase the deficit and Congress will not agree how to finance it because they don't know how to finance anything.

Capping it would make no sense from an economic perspective. The point of tying the rate is to allow the rate to float with the market. Capping would allow you to have the benefit of low rates without ever having the potential burden of higher rates. The fact that you can borrow student loan rates so low is stupid...and the reason people take out way too much thereby allowing tuition to soar.

Its even more stupid to lower undergrad rates since they have the highest default rate. They are riskier credit and therefore should cost more to obtain. Not everyone needs to go to college and if we want to permit poor people to go, making it cheaper for them to get hopelessly in debt makes little sense. The practical reality is that a bachelors degree no longer guarantees a salary sufficient to pay back that debt regardless of your background.

Two problems with this. First, the government is not a business and should not be tying to make money. Student loans are a public good and were designed that way. Should there be caps on the AMOUNT that students can take out? Sure. That might encourage schools to look at lowering tuition costs. But as history has shown, people will bury themselves under high-interest student loan debt without a second thought. Unfortunately, it is the high interest rate that prevents many from repaying it (if you can't ever make a dent in the principle and are always paying off interest, you lose the incentive to pay at all). Lower interest rates (along with, perhaps, a stricter cap on the amount of total loan debt) would increase the number of loans that are being repaid.

Second, let's not pretend that the loans exist in any type of market system even when we're talking about private issuers. Student loans are non-dischargeable unlike nearly any other type of debt. These are not normal market conditions.

No where in this is the government trying to make money. By definition the 10-year t-bill is how they are getting the money to guarantee...its breaking even at best. I agree part of the problem is students willing to bury themselves and I'd like to see both a norming of the rate and a cap on student loans. Plus, I'd like to see schools lose their eligibility for any loans at a certain point (e.g. Univ of Phoenix is adding very little to most of their students earning potential).

Its not the high rate that prevents repayment. Its the borrowing in the first place. We need to get out of this everyone should go to college mentality. It just doesn't make sense if you look at the real statistics, job demand for skilled trades, etc.

I read your post as you think the government should exist to protect people from their own stupidity (by making it easier to pay back after people borrow too much). I don't agree. Government created the problem by creating the artificial market with low rates and wide availability and they should fix it by fixing that. I agree that non-dischargability affects the market but not as much as you'd think from an economic perspective. They are guaranteed by the government so either way the private lender is getting their money. The bankruptcy protections protect the government (and society as a whole) from mass-discharging of debt.

I also don't agree that student loans are necessarily a "public good." They are increasingly a stranglehold on all of our futures...both the debtors and society in general. The original purpose and intent has been subverted and turned into an effective means of hurting the very people they were intended to help. They are no longer a means of permitting people to be able to afford school to better their outlook. They are a means used by nearly EVERYONE to attend. They have gone from an aid to attending to a requirement for attending. And the amounts borrowed have exploded so that very few people will benefit from their degree in view of the associated debt.

[Cellar-door]

This is right. The GOP bill would tie the Stafford rate to the 10-yr treasury bond rate, which at this point is about 3x less than the 6.8% we pay now. The downside is that as interest rates go up, that would really screw over students. Which is why the smart thing to do would be to CAP the interest rate at 6.8%. Though that idea is probably not feasible because it will increase the deficit and Congress will not agree how to finance it because they don't know how to finance anything.

Capping it would make no sense from an economic perspective. The point of tying the rate is to allow the rate to float with the market. Capping would allow you to have the benefit of low rates without ever having the potential burden of higher rates. The fact that you can borrow student loan rates so low is stupid...and the reason people take out way too much thereby allowing tuition to soar.

Its even more stupid to lower undergrad rates since they have the highest default rate. They are riskier credit and therefore should cost more to obtain. Not everyone needs to go to college and if we want to permit poor people to go, making it cheaper for them to get hopelessly in debt makes little sense. The practical reality is that a bachelors degree no longer guarantees a salary sufficient to pay back that debt regardless of your background.

Two problems with this. First, the government is not a business and should not be tying to make money. Student loans are a public good and were designed that way. Should there be caps on the AMOUNT that students can take out? Sure. That might encourage schools to look at lowering tuition costs. But as history has shown, people will bury themselves under high-interest student loan debt without a second thought. Unfortunately, it is the high interest rate that prevents many from repaying it (if you can't ever make a dent in the principle and are always paying off interest, you lose the incentive to pay at all). Lower interest rates (along with, perhaps, a stricter cap on the amount of total loan debt) would increase the number of loans that are being repaid.

Second, let's not pretend that the loans exist in any type of market system even when we're talking about private issuers. Student loans are non-dischargeable unlike nearly any other type of debt. These are not normal market conditions.

No where in this is the government trying to make money. By definition the 10-year t-bill is how they are getting the money to guarantee...its breaking even at best. I agree part of the problem is students willing to bury themselves and I'd like to see both a norming of the rate and a cap on student loans. Plus, I'd like to see schools lose their eligibility for any loans at a certain point (e.g. Univ of Phoenix is adding very little to most of their students earning potential).

Its not the high rate that prevents repayment. Its the borrowing in the first place. We need to get out of this everyone should go to college mentality. It just doesn't make sense if you look at the real statistics, job demand for skilled trades, etc.

I read your post as you think the government should exist to protect people from their own stupidity (by making it easier to pay back after people borrow too much). I don't agree. Government created the problem by creating the artificial market with low rates and wide availability and they should fix it by fixing that. I agree that non-dischargability affects the market but not as much as you'd think from an economic perspective. They are guaranteed by the government so either way the private lender is getting their money. The bankruptcy protections protect the government (and society as a whole) from mass-discharging of debt.

I also don't agree that student loans are necessarily a "public good." They are increasingly a stranglehold on all of our futures...both the debtors and society in general. The original purpose and intent has been subverted and turned into an effective means of hurting the very people they were intended to help. They are no longer a means of permitting people to be able to afford school to better their outlook. They are a means used by nearly EVERYONE to attend. They have gone from an aid to attending to a requirement for attending. And the amounts borrowed have exploded so that very few people will benefit from their degree in view of the associated debt.

The government most definitely will make a profit on student loans, they have for years. While the $51B number that has been tossed around is misleading (doesn't include some administrative costs) there is definitely a profit margin there and a significant one.

[guano]

Grad loans have always been at 6.8%. The fight is over the rate for undergrad loans.

The Subsidized Stafford Loan rate just increased on July 1 from 3.4% to 6.8%. http://www.studentloannetwork.com/tips/

So our Subsidized Stafford Loan rate was always 6.8%?

Yes. 3.4% was only ever undergrad loans. Grad students don't get subsidized Stafford; only unsubsidized. Believe me, I've got the loan statement to prove it.

Well, we did get subsidized a few years ago...but it was still 6.8%.

A decade back it was lower than 6.8

[jbagelboy]

Fwiw the feds make a shitload on student loans. Obama netted billions on student loan interest in 2012.

[jingosaur]

I don't get why they don't put actuarial controls on student loans. Student loans are to help people pay for an education that will help them to further benefit society. An 18 year old getting a Bachelors degree in Psychology from a crappy online college doesn't benefit society. It serves as a funnel that puts federal tax payer money into the pockets of for-profit corporations that add no real value.

[trojandave]

I don't get why they don't put actuarial controls on student loans. Student loans are to help people pay for an education that will help them to further benefit society. An 18 year old getting a Bachelors degree in Psychology from a crappy online college doesn't benefit society. It serves as a funnel that puts federal tax payer money into the pockets of for-profit corporations that add no real value.

You think the government should tell people what they can and cannot study? What's worthwhile for them and what's not? I hear what you're saying, but that's a dangerous path

[guano]

I don't get why they don't put actuarial controls on student loans. Student loans are to help people pay for an education that will help them to further benefit society. An 18 year old getting a Bachelors degree in Psychology from a crappy online college doesn't benefit society. It serves as a funnel that puts federal tax payer money into the pockets of for-profit corporations that add no real value.

You think the government should tell people what they can and cannot study? What's worthwhile for them and what's not? I hear what you're saying, but that's a dangerous path

If the government is paying for it, then the government should have a say.
If you want a PhD in basket weaving, why should taxpayers need to subsidize it? If you pay for it on your own, that's fine, but if the government is subsidizing, then they should have a say, either in how the college is run (e.g. more teaching, less research; limiting professor salary) or by limiting the classes students can take to those that the government deems worthwhile

[trojandave]

I don't get why they don't put actuarial controls on student loans. Student loans are to help people pay for an education that will help them to further benefit society. An 18 year old getting a Bachelors degree in Psychology from a crappy online college doesn't benefit society. It serves as a funnel that puts federal tax payer money into the pockets of for-profit corporations that add no real value.

You think the government should tell people what they can and cannot study? What's worthwhile for them and what's not? I hear what you're saying, but that's a dangerous path

If the government is paying for it, then the government should have a say.
If you want a PhD in basket weaving, why should taxpayers need to subsidize it? If you pay for it on your own, that's fine, but if the government is subsidizing, then they should have a say, either in how the college is run (e.g. more teaching, less research; limiting professor salary) or by limiting the classes students can take to those that the government deems worthwhile

It's easy to say that when you point to basket weaving since it's not real... But look at this scenario in the real world where the government would need to have hard and fast rules, and a line drawn in the sand, to dictate how to act. You just took the LSAT and got into some good schools, but what if the government denied your Stafford and Direct Plus loans this year because there are already enough lawyers? "Sorry bro, you were born in the wrong decade and there's too much supply for the need. Looking at legal employment statistics, we don't think you'll get a job to pay this back so no-go. However, we'll give you a loan to be a doctor or an accountant, otherwise you can pay for law school yourself." How can giving them that kind of power ever be helpful? Even more, outside of ridiculous majors like basket weaving, what's obvious to one person as a waste of tax payer money is someone else's dream job (and perhaps employment statistics in that field are far better than in law right now.)

There are serious problems with student debt and the cost of education and I want this to be fixed as much as the next person. But I think there are way better methods than giving some bureaucrat partial control over what the citizens of this country can and cannot do with their professional lives.

[guano]

I don't get why they don't put actuarial controls on student loans. Student loans are to help people pay for an education that will help them to further benefit society. An 18 year old getting a Bachelors degree in Psychology from a crappy online college doesn't benefit society. It serves as a funnel that puts federal tax payer money into the pockets of for-profit corporations that add no real value.

You think the government should tell people what they can and cannot study? What's worthwhile for them and what's not? I hear what you're saying, but that's a dangerous path

If the government is paying for it, then the government should have a say.
If you want a PhD in basket weaving, why should taxpayers need to subsidize it? If you pay for it on your own, that's fine, but if the government is subsidizing, then they should have a say, either in how the college is run (e.g. more teaching, less research; limiting professor salary) or by limiting the classes students can take to those that the government deems worthwhile

It's easy to say that when you point to basket weaving since it's not real... But look at this scenario in the real world where the government would need to have hard and fast rules, and a line drawn in the sand, to dictate how to act. You just took the LSAT and got into some good schools, but what if the government denied your Stafford and Direct Plus loans this year because there are already enough lawyers? "Sorry bro, you were born in the wrong decade and there's too much supply for the need. Looking at legal employment statistics, we don't think you'll get a job to pay this back so no-go. However, we'll give you a loan to be a doctor or an accountant, otherwise you can pay for law school yourself." How can giving them that kind of power ever be helpful? Even more, outside of ridiculous majors like basket weaving, what's obvious to one person as a waste of tax payer money is someone else's dream job (and perhaps employment statistics in that field are far better than in law right now.)

There are serious problems with student debt and the cost of education and I want this to be fixed as much as the next person. But I think there are way better methods than giving some bureaucrat partial control over what the citizens of this country can and cannot do with their professional lives.

are you dating its a good thing that any idiot can get a loan to attend any TTT?
Again, citizens can do whatever they want with their lives, as long as they're paying for it. But when law schools can charge $50k per year and have less than 1 in 3 graduates become actual attorneys (to pick an easy example) I don't think the government should foot the bill (which is, in effect, what's happening)

[AreJay711]

This whole mess just proved that once you give a public benefit you can never take it way. Essentially, eliminating the subsidized rate still gave bellow market rate loans to students.

Also, I know most people's parents paid for college or they had a scholarship, but there are hard limits on undergrad's Stafford loans. The only people getting conned are people over 26 or already have an undergraduate degree.

[trojandave]

are you dating its a good thing that any idiot can get a loan to attend any TTT?
Again, citizens can do whatever they want with their lives, as long as they're paying for it. But when law schools can charge $50k per year and have less than 1 in 3 graduates become actual attorneys (to pick an easy example) I don't think the government should foot the bill (which is, in effect, what's happening)

That's not at all what I'm saying - I'm saying I don't want to live in a Dystopian society where everyone is at the will of the government and does what the government determines is beneficial to society or not. My personal believe is that the government shouldn't even be in the loan business. (Can you imagine how cheap tuition would be if the government didn't make it so easy for tuition inflation? And how competitive private lenders would have to be to fill that gap? And THEY would regulate exactly as you're suggesting the government should do, which I'd be all over since they're private entities.) I'm with you, I think we need major reform. But there are way better ways to start fixing this problem than paying a bunch of DMV bureaucrats (who will get their salary from a hefty boost in your interest rates, btw) to tell people what is acceptable or not from a government perspective.

Back on topic now... In light of all this news of the new Senate and House bills that's coming out - if we've already signed a Master Promissory Note, will we still get the new rates retroactively? I see that said in some articles but not in others.

[UMich11]

http://money.cnn.com/2013/07/19/news/ec ... index.html

new senate bills drop grad rates to below 6% for this year. Does this just mean Stafford loans, not grad-plus?

[thatmanheisapoet]

http://money.cnn.com/2013/07/19/news/ec ... index.html

new senate bills drop grad rates to below 6% for this year. Does this just mean Stafford loans, not grad-plus?

So our rates have changed too now?

[guano]

http://money.cnn.com/2013/07/19/news/ec ... index.html

new senate bills drop grad rates to below 6% for this year. Does this just mean Stafford loans, not grad-plus?

So our rates have changed too now?

It's not yet finalized, but it looks like it'll happen