Student Loan Debate Explained

nerdwallet The Final Countdown: Impact of 3.4% to 6.8% On July 1st, the reduced interest rate on federal subsized student loans will expire, resulting in the interest rate reverting to 6.8%. The interest was gradually reduced between 2008 to 2011, as part of a 2007 bill. Currently, both Democrats and Republicans support extending the interest rate reduction. However, up until now the two parties were locked in a stalemate on how to fund the one-year exten- sion. While Republicans wanted to tap into Obama's health care prevention fund, Democrats sought to end a loophole in the tax treatment of S corporations. Cur- rently, both parties appear to be reaching an agreement that would fund the exten- sion by raising premiums for federal pension insurance. Now, Senators must decide how to accelerate the proposal through Congress before the deadline. The following infographic desribes how this decision impacts the average undergraduate borrower. COPYRIGHT NERDWALLET K ALL RIGHTS RESERVED 2012 FEDERAL FINANCIAL AID PROGRAMS IMPACTED First, let's review the back- ground that has led us to this point: M Stafford Subsidized Loans | Stafford Unsubsidized Loans X Pell Grants TIMELINE OF FEDERAL SUBSIDIZED INTEREST RATES 6.8% 6.8% 6.8% 6.0% 5.6% 4,5% 3.4% 2006 2007 2008 2009 2010 2011 2012 7.4 Million $6.7 Billion UNDERGRADATE STUDENTS EXPECTED TO RECEIVE SUBSIDIZED STAFFORD LOANS FOR 2012-2013. ESTIMATED TAXPAYER COST TO EXTEND 3.4 PERCENT INTEREST RATE FOR ONE ADDITIONAL YEAR. DEADLINE TO EXTENT STUDENT LOAN INTEREST RATE REDUCTION JULY Ist, 2012 AVERAGE ANNUAL SUBSIDIZED BORROWING What does this mean for students? Let's examine the impact for the average borrower over a single year: $4.226 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $850 3.4% TOTAL ADDITIONAL INTEREST INTEREST PAID FOR A SINGLE INTEREST RATE PAID YEAR OF BORROWING $959 V.S. AT $1,09 6.8% TOTAL INTEREST INTEREST RATE PAID FOR EACH $1,000 BORROWED Or put another way, the impact for every $1,000 borrowed at 6.8% rather then 3.4%: $1,000 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $201 3.4% TOTAL ADDITIONAL INTEREST INTEREST PAID PAID FOR EACH $1,000 INTEREST BORROWED RATE .... $227 V.S. AT $428 6.8% TOTAL INTEREST INTEREST RATE PAID SOURCE http://www.washingtonpost.com/blogs/2chambers/post/student-loan-rate-deal-reached-senate-leaders-say/2012/06/26/9JQAQBPV4V_blog.html http://chronicle.com/article/Students-Protest-Doubling-of/131151/ http://m.apnews.com/ap/db_6419/contentdetail.htm?contentguid=gSpzkY XH http://newamerica.net/publications/policy/student_loan_interest_rates http://www.fastweb.com/financial-aid/articles/3529-a-primer-on-the-doubling-of-the-subsidized-stafford-loan-interest-rate?page=3 The above calculations assume that interest during the 6-month grace period is re-capitalized into the loan. Currently, interest during this period is subsidized by the federal government, but this benefit will change for 2012-2014 loans. nerdwallet The Final Countdown: Impact of 3.4% to 6.8% On July 1st, the reduced interest rate on federal subsized student loans will expire, resulting in the interest rate reverting to 6.8%. The interest was gradually reduced between 2008 to 2011, as part of a 2007 bill. Currently, both Democrats and Republicans support extending the interest rate reduction. However, up until now the two parties were locked in a stalemate on how to fund the one-year exten- sion. While Republicans wanted to tap into Obama's health care prevention fund, Democrats sought to end a loophole in the tax treatment of S corporations. Cur- rently, both parties appear to be reaching an agreement that would fund the exten- sion by raising premiums for federal pension insurance. Now, Senators must decide how to accelerate the proposal through Congress before the deadline. The following infographic desribes how this decision impacts the average undergraduate borrower. COPYRIGHT NERDWALLET K ALL RIGHTS RESERVED 2012 FEDERAL FINANCIAL AID PROGRAMS IMPACTED First, let's review the back- ground that has led us to this point: M Stafford Subsidized Loans | Stafford Unsubsidized Loans X Pell Grants TIMELINE OF FEDERAL SUBSIDIZED INTEREST RATES 6.8% 6.8% 6.8% 6.0% 5.6% 4,5% 3.4% 2006 2007 2008 2009 2010 2011 2012 7.4 Million $6.7 Billion UNDERGRADATE STUDENTS EXPECTED TO RECEIVE SUBSIDIZED STAFFORD LOANS FOR 2012-2013. ESTIMATED TAXPAYER COST TO EXTEND 3.4 PERCENT INTEREST RATE FOR ONE ADDITIONAL YEAR. DEADLINE TO EXTENT STUDENT LOAN INTEREST RATE REDUCTION JULY Ist, 2012 AVERAGE ANNUAL SUBSIDIZED BORROWING What does this mean for students? Let's examine the impact for the average borrower over a single year: $4.226 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $850 3.4% ТOTAL ADDITIONAL INTEREST INTEREST PAID FOR A SINGLE INTEREST RATE PAID YEAR OF BORROWING $959 V.S. AT $1,09 6.8% TOTAL INTEREST INTEREST RATE PAID FOR EACH $1,000 BORROWED Or put another way, the impact for every $1,000 borrowed at 6.8% rather then 3.4%: $1,000 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $201 3.4% TOTAL ADDITIONAL INTEREST INTEREST PAID PAID FOR EACH $1,000 INTEREST BORROWED RATE .... $227 V.S. AT $428 6.8% TOTAL INTEREST INTEREST RATE PAID SOURCE http://www.washingtonpost.com/blogs/2chambers/post/student-loan-rate-deal-reached-senate-leaders-say/2012/06/26/9JQAQBPV4V_blog.html http://chronicle.com/article/Students-Protest-Doubling-of/131151/ http://m.apnews.com/ap/db_6419/contentdetail.htm?contentguid=gSpzkY XH http://newamerica.net/publications/policy/student_loan_interest_rates http://www.fastweb.com/financial-aid/articles/3529-a-primer-on-the-doubling-of-the-subsidized-stafford-loan-interest-rate?page=3 The above calculations assume that interest during the 6-month grace period is re-capitalized into the loan. Currently, interest during this period is subsidized by the federal government, but this benefit will change for 2012-2014 loans. nerdwallet The Final Countdown: Impact of 3.4% to 6.8% On July 1st, the reduced interest rate on federal subsized student loans will expire, resulting in the interest rate reverting to 6.8%. The interest was gradually reduced between 2008 to 2011, as part of a 2007 bill. Currently, both Democrats and Republicans support extending the interest rate reduction. However, up until now the two parties were locked in a stalemate on how to fund the one-year exten- sion. While Republicans wanted to tap into Obama's health care prevention fund, Democrats sought to end a loophole in the tax treatment of S corporations. Cur- rently, both parties appear to be reaching an agreement that would fund the exten- sion by raising premiums for federal pension insurance. Now, Senators must decide how to accelerate the proposal through Congress before the deadline. The following infographic desribes how this decision impacts the average undergraduate borrower. COPYRIGHT NERDWALLET K ALL RIGHTS RESERVED 2012 FEDERAL FINANCIAL AID PROGRAMS IMPACTED First, let's review the back- ground that has led us to this point: M Stafford Subsidized Loans | Stafford Unsubsidized Loans X Pell Grants TIMELINE OF FEDERAL SUBSIDIZED INTEREST RATES 6.8% 6.8% 6.8% 6.0% 5.6% 4,5% 3.4% 2006 2007 2008 2009 2010 2011 2012 7.4 Million $6.7 Billion UNDERGRADATE STUDENTS EXPECTED TO RECEIVE SUBSIDIZED STAFFORD LOANS FOR 2012-2013. ESTIMATED TAXPAYER COST TO EXTEND 3.4 PERCENT INTEREST RATE FOR ONE ADDITIONAL YEAR. DEADLINE TO EXTENT STUDENT LOAN INTEREST RATE REDUCTION JULY Ist, 2012 AVERAGE ANNUAL SUBSIDIZED BORROWING What does this mean for students? Let's examine the impact for the average borrower over a single year: $4.226 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $850 3.4% ТOTAL ADDITIONAL INTEREST INTEREST PAID FOR A SINGLE INTEREST RATE PAID YEAR OF BORROWING $959 V.S. AT $1,09 6.8% TOTAL INTEREST INTEREST RATE PAID FOR EACH $1,000 BORROWED Or put another way, the impact for every $1,000 borrowed at 6.8% rather then 3.4%: $1,000 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $201 3.4% TOTAL ADDITIONAL INTEREST INTEREST PAID PAID FOR EACH $1,000 INTEREST BORROWED RATE .... $227 V.S. AT $428 6.8% TOTAL INTEREST INTEREST RATE PAID SOURCE http://www.washingtonpost.com/blogs/2chambers/post/student-loan-rate-deal-reached-senate-leaders-say/2012/06/26/9JQAQBPV4V_blog.html http://chronicle.com/article/Students-Protest-Doubling-of/131151/ http://m.apnews.com/ap/db_6419/contentdetail.htm?contentguid=gSpzkY XH http://newamerica.net/publications/policy/student_loan_interest_rates http://www.fastweb.com/financial-aid/articles/3529-a-primer-on-the-doubling-of-the-subsidized-stafford-loan-interest-rate?page=3 The above calculations assume that interest during the 6-month grace period is re-capitalized into the loan. Currently, interest during this period is subsidized by the federal government, but this benefit will change for 2012-2014 loans. nerdwallet The Final Countdown: Impact of 3.4% to 6.8% On July 1st, the reduced interest rate on federal subsized student loans will expire, resulting in the interest rate reverting to 6.8%. The interest was gradually reduced between 2008 to 2011, as part of a 2007 bill. Currently, both Democrats and Republicans support extending the interest rate reduction. However, up until now the two parties were locked in a stalemate on how to fund the one-year exten- sion. While Republicans wanted to tap into Obama's health care prevention fund, Democrats sought to end a loophole in the tax treatment of S corporations. Cur- rently, both parties appear to be reaching an agreement that would fund the exten- sion by raising premiums for federal pension insurance. Now, Senators must decide how to accelerate the proposal through Congress before the deadline. The following infographic desribes how this decision impacts the average undergraduate borrower. COPYRIGHT NERDWALLET K ALL RIGHTS RESERVED 2012 FEDERAL FINANCIAL AID PROGRAMS IMPACTED First, let's review the back- ground that has led us to this point: M Stafford Subsidized Loans | Stafford Unsubsidized Loans X Pell Grants TIMELINE OF FEDERAL SUBSIDIZED INTEREST RATES 6.8% 6.8% 6.8% 6.0% 5.6% 4,5% 3.4% 2006 2007 2008 2009 2010 2011 2012 7.4 Million $6.7 Billion UNDERGRADATE STUDENTS EXPECTED TO RECEIVE SUBSIDIZED STAFFORD LOANS FOR 2012-2013. ESTIMATED TAXPAYER COST TO EXTEND 3.4 PERCENT INTEREST RATE FOR ONE ADDITIONAL YEAR. DEADLINE TO EXTENT STUDENT LOAN INTEREST RATE REDUCTION JULY Ist, 2012 AVERAGE ANNUAL SUBSIDIZED BORROWING What does this mean for students? Let's examine the impact for the average borrower over a single year: $4.226 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $850 3.4% ТOTAL ADDITIONAL INTEREST INTEREST PAID FOR A SINGLE INTEREST RATE PAID YEAR OF BORROWING $959 V.S. AT $1,09 6.8% TOTAL INTEREST INTEREST RATE PAID FOR EACH $1,000 BORROWED Or put another way, the impact for every $1,000 borrowed at 6.8% rather then 3.4%: $1,000 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $201 3.4% TOTAL ADDITIONAL INTEREST INTEREST PAID PAID FOR EACH $1,000 INTEREST BORROWED RATE .... $227 V.S. AT $428 6.8% TOTAL INTEREST INTEREST RATE PAID SOURCE http://www.washingtonpost.com/blogs/2chambers/post/student-loan-rate-deal-reached-senate-leaders-say/2012/06/26/9JQAQBPV4V_blog.html http://chronicle.com/article/Students-Protest-Doubling-of/131151/ http://m.apnews.com/ap/db_6419/contentdetail.htm?contentguid=gSpzkY XH http://newamerica.net/publications/policy/student_loan_interest_rates http://www.fastweb.com/financial-aid/articles/3529-a-primer-on-the-doubling-of-the-subsidized-stafford-loan-interest-rate?page=3 The above calculations assume that interest during the 6-month grace period is re-capitalized into the loan. Currently, interest during this period is subsidized by the federal government, but this benefit will change for 2012-2014 loans. nerdwallet The Final Countdown: Impact of 3.4% to 6.8% On July 1st, the reduced interest rate on federal subsized student loans will expire, resulting in the interest rate reverting to 6.8%. The interest was gradually reduced between 2008 to 2011, as part of a 2007 bill. Currently, both Democrats and Republicans support extending the interest rate reduction. However, up until now the two parties were locked in a stalemate on how to fund the one-year exten- sion. While Republicans wanted to tap into Obama's health care prevention fund, Democrats sought to end a loophole in the tax treatment of S corporations. Cur- rently, both parties appear to be reaching an agreement that would fund the exten- sion by raising premiums for federal pension insurance. Now, Senators must decide how to accelerate the proposal through Congress before the deadline. The following infographic desribes how this decision impacts the average undergraduate borrower. COPYRIGHT NERDWALLET K ALL RIGHTS RESERVED 2012 FEDERAL FINANCIAL AID PROGRAMS IMPACTED First, let's review the back- ground that has led us to this point: M Stafford Subsidized Loans | Stafford Unsubsidized Loans X Pell Grants TIMELINE OF FEDERAL SUBSIDIZED INTEREST RATES 6.8% 6.8% 6.8% 6.0% 5.6% 4,5% 3.4% 2006 2007 2008 2009 2010 2011 2012 7.4 Million $6.7 Billion UNDERGRADATE STUDENTS EXPECTED TO RECEIVE SUBSIDIZED STAFFORD LOANS FOR 2012-2013. ESTIMATED TAXPAYER COST TO EXTEND 3.4 PERCENT INTEREST RATE FOR ONE ADDITIONAL YEAR. DEADLINE TO EXTENT STUDENT LOAN INTEREST RATE REDUCTION JULY Ist, 2012 AVERAGE ANNUAL SUBSIDIZED BORROWING What does this mean for students? Let's examine the impact for the average borrower over a single year: $4.226 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $850 3.4% ТOTAL ADDITIONAL INTEREST INTEREST PAID FOR A SINGLE INTEREST RATE PAID YEAR OF BORROWING $959 V.S. AT $1,09 6.8% TOTAL INTEREST INTEREST RATE PAID FOR EACH $1,000 BORROWED Or put another way, the impact for every $1,000 borrowed at 6.8% rather then 3.4%: $1,000 IMPACT ON TOTAL INTEREST PAID OVER TEN YEARS OF REPAYMENT AT $201 3.4% TOTAL ADDITIONAL INTEREST INTEREST PAID PAID FOR EACH $1,000 INTEREST BORROWED RATE .... $227 V.S. AT $428 6.8% TOTAL INTEREST INTEREST RATE PAID SOURCE http://www.washingtonpost.com/blogs/2chambers/post/student-loan-rate-deal-reached-senate-leaders-say/2012/06/26/9JQAQBPV4V_blog.html http://chronicle.com/article/Students-Protest-Doubling-of/131151/ http://m.apnews.com/ap/db_6419/contentdetail.htm?contentguid=gSpzkY XH http://newamerica.net/publications/policy/student_loan_interest_rates http://www.fastweb.com/financial-aid/articles/3529-a-primer-on-the-doubling-of-the-subsidized-stafford-loan-interest-rate?page=3 The above calculations assume that interest during the 6-month grace period is re-capitalized into the loan. Currently, interest during this period is subsidized by the federal government, but this benefit will change for 2012-2014 loans.