According to Obama the House didn't pay the right
kind of attention to the situation. Nonetheless, the proposal that Obama gave
is not much different from what the House had given. Both the plans proposed a
significant rise in interest that students would face in the coming years. The
question to ponder upon here is what is at stake? The undergraduate students
taking out student loans for higher education is about 7 million for the year
2013-14. These students will face bigger balances when they would start paying
off their loans after graduating. The hike in the rate will only be affecting
undergraduate students who have their loans subsidized. Here originally the
federal government absorbs some of the interest rates. These are generally
awarded based on the economic needs of the applicant. There are a number of
more undergraduate students who take out unsubsidized loans and have to pay a
rate of 6.8% since the year 2007. These rates are pitched to remain the same
for most of the middle-class undergraduates who avail these.
In such a situation everyone is wondering what is
the Republican House planning to do. The House is planning to set a uniform
interest rate of around 5% for all students. This rate is an increase for the
students who are taking subsidized loan but a reduction for the ones who are
not. This rate is supposed to change once a year. The decision of the rates is
based on the 10-year Treasury yield which is currently floating around 2.1%. It
is expected to increase in the coming years. The House is planning to add a
mark-up of 2.5% to raise the money for the cost of running the plan. The change
in policy that is different from the
existing one is that the students are forbidden from locking the interest rates
until they graduate. However there is a cap on the maximum rate that prevents
them from rising above 8.5%. The advantage that prevails currently is that
student loans are cheaper because of lower rates, the disadvantage is that
rates may get closer to the cap of 8.5% in the years to come.
