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Friday, May 31, 2013

Fact Sheet: President Obama Fights to Keep Interest Rates from Doubling | The White House

Fact Sheet: President Obama Fights to Keep Interest Rates from Doubling | The White House:

Fact Sheet: President Obama Fights to Keep Interest Rates from Doubling

“Helping more of our young people afford college should be at the forefront of American’s agenda.  It shouldn’t be a Democratic or a Republican issue.”
--President Barack Obama, University of Colorado-Boulder, April 24, 2012.
Last year the President worked with Republicans and Democrats in Congress to secure a one-year extension to keep the student loan interest rate from doubling to 6.8 percent.  Absent Congressional action, interest rates on new subsidized student loans will double once again on July 1 of this year.  To keep rates from doubling, the President’s FY 2014 Budget proposed that Congress enact a long-term solution that cuts rates this year on nearly all new loans, ensures that all students have access to affordable repayment options, and does not charge students higher interest rate to pay for deficit reduction.  
The comprehensive solution put forward by the President allows borrowers to benefit from the low interest rates currently available in the marketplace, and guarantees these rates over the life of their loans.  In the future, fixed rates would be determined each year, and the plan would ensure that borrower’s rates are in line with the government’s own cost of borrowing.  Additionally, the President’s plan guarantees that student loans remain affordable by allowing all students – past, present, and future – to cap their payments at 10 percent of income.
If Congress fails to act, college will be further out of reach for millions of students and families.  In fact, an incoming freshman who borrows $27,000 over the next four years -- a typical debt incurred by today’s college graduates – is projected to pay over $4,000 dollars more over the life of their loans without the President’s proposal.  As the economy continues to recover, and at a time when market interest rates are at historic lows, more than 7 million students who will rely on these loans to finance postsecondary education should not be burdened with additional college debt when they graduate and launch a career or a business, start a family, or buy a house.
Since the President released his budget, several proposals have been put forward in the House and Senate that address the interest rate issue in both the near-term and long-term.  What is most important is that Congress agrees upon a solution that prevents rates from doubling on July 1, and a number of proposals meet that test.  The Administration has continued to focus on working with Republican and Democrats in Congress on a fix that meets that test and does not charge students higher rates to fund deficit reduction.
While the Administration welcomed action by the House on interest rates, it unfortunately moves us in the wrong direction.  Under the recently passed House legislation, H.R. 1911, many borrowers could end up paying even more than if Congress does nothing at all.  The same college freshman who could save over $4,000 dollars under the President’s plan would pay over $200 more under the House Republican plan.  The House bill also uses higher student rates to reduce the deficit by $4 billion, raises rates the most on low-income students, creates greater uncertainty for borrowers about the total cost of their loans, and fails to include additional help for students struggling to repay their loans. 
Students and their families need certainty about college costs, not fluctuating rates, as they make critical decisions about borrowing for college.  In addition to the Administration’s work on student loan interest rates, we have worked hard to provide greater transparency about college costs through efforts like the College Scorecard, so students and families can have better information and more certainty as they plan for college.

Change in Interest Paid on Subsidized Stafford Loans
For a Typical Student Borrowing the Average Amount, by State
State
2013-14 Total Subsidized Stafford Loan Amount
Borrower Count
Average Borrowed
Average Savings Under the President’s PlanM
Alaska
$42,696,982
11,624
$3,673
$1,030
Alabama
$466,706,263
125,094
$3,731
$1,046
Arkansas
$246,644,654
68,243
$3,614
$1,013
Arizona
$1,650,867,640
450,977
$3,661
$1,026
California
$2,206,897,300
550,928
$4,006
$1,123
Colorado
$572,439,923
154,128
$3,714
$1,041
Connecticut
$277,885,356
73,051
$3,804
$1,066
District of Columbia
$198,987,697
50,415
$3,947
$1,106
Delaware
$67,549,662
18,452
$3,661
$1,026
Foreign Campus
$17,220,006
4,009
$4,295
$1,204
Florida
$1,756,446,930
462,048
$3,801
$1,065
Georgia
$817,315,434
228,887
$3,571
$1,001
Guam
$5,154,086
1,328
$3,882
$1,088
Hawaii
$64,351,058
17,325
$3,714
$1,041
Iowa
$817,513,738
222,553
$3,673
$1,030
Idaho
$176,757,135
46,593
$3,794
$1,063
Illinois
$1,362,168,291
337,440
$4,037
$1,132
Indiana
$1,025,417,698
271,089
$3,783
$1,060
Kansas
$283,086,712
78,074
$3,626
$1,016
Kentucky
$440,183,775
123,382
$3,568
$1,000
Louisiana
$304,064,050
84,860
$3,583
$1,004
Massachusetts
$627,935,759
158,718
$3,956
$1,109
Maryland
$387,512,749
105,027
$3,690
$1,034
Maine
$125,208,491
33,883
$3,695
$1,036
Michigan
$1,058,623,425
284,937
$3,715
$1,041
Minnesota
$718,944,505
194,211
$3,702
$1,038
Missouri
$585,481,902
157,023
$3,729
$1,045
Mississippi
$237,496,084
66,392
$3,577
$1,003
Montana
$88,120,071
24,017
$3,669
$1,028
North Carolina
$666,048,885
176,362
$3,777
$1,059
North Dakota
$73,249,983
20,041
$3,655
$1,024
Nebraska
$169,580,270
47,290
$3,586
$1,005
New Hampshire
$145,808,024
38,923
$3,746
$1,050
New Jersey
$546,133,386
144,926
$3,768
$1,056
New Mexico
$142,216,470
40,703
$3,494
$979
Nevada
$101,994,342
27,155
$3,756
$1,053
New York
$1,556,774,109
409,287
$3,804
$1,066
Ohio
$1,307,496,119
361,857
$3,613
$1,013
Oklahoma
$303,979,477
84,373
$3,603
$1,010
Oregon
$446,861,681
121,570
$3,676
$1,030
Pennsylvania
$1,452,626,575
374,328
$3,881
$1,088
Puerto Rico
$152,952,989
47,894
$3,194
$895
Rhode Island
$158,562,059
42,154
$3,761
$1,054
South Carolina
$404,736,755
111,601
$3,627
$1,017
South Dakota
$124,536,806
34,748
$3,584
$1,005
Tennessee
$497,162,080
131,788
$3,772
$1,057
Texas
$1,687,827,256
464,119
$3,637
$1,019
Utah
$363,278,323
96,768
$3,754
$1,052
Virginia
$688,860,396
179,038
$3,848
$1,079
Virgin Islands
$2,713,847
735
$3,694
$1,035
Vermont
$71,101,710
18,156
$3,916
$1,098
Washington
$391,091,512
104,863
$3,730
$1,045
Wisconsin
$591,341,448
159,147
$3,716
$1,042
West Virginia
$224,318,539
67,088
$3,344
$937
Wyoming
$29,106,360
8,258
$3,525
$988
Total (Unduplicated Count)
$28,930,036,778
7,200,000
$4,018
$1,126
Source: U.S. Department of Education analysis.  Assumes a student who borrows the state average amount of subsidized loans in the 2013-14 academic year and repays the loans over the expected period of 12 years.
The President’s Plan to Keep Student Loans Affordable
Lower Interest Rates Now: Under the President’s plan, nearly 11 million borrowers will see their interest rates decrease on new loans after July 1, 2013, compared to current law. Over 7 million Subsidized Stafford loan borrowers will see their rates on new loans drop below the current reduced rate of 3.4 percent to a projected 2.9 percent.  Over 8.5 million Unsubsidized Stafford borrowers will see their rates drop on new loans from 6.8 percent to 4.9 percent.  And over 1 million GradPLUS and Parent PLUS borrowers will see their rates on new loans drop from 7.9 percent to 5.9 percent—the first reduction in such rates since rates increased in 2006.
More Affordable Repayment Options: Additionally, the President is proposing extending his Pay As You Earn (PAYE) loan repayment plan to all student borrowers to provide an insurance policy against unmanageable federal student loan debt. Previously, the plan was available only to new borrowers.  Under the President’s expanded PAYE plan, all student borrowers are assured that their federal student loan payments will never exceed 10 percent of their discretionary income.
A Fiscally Responsible Solution:  The President’s plan is cost-neutral and will keep the federal student loan programs on secure footing for the future.  It also ensures we have the necessary resources available to keep investing in other critical higher education programs such as the Pell grant program and the Perkins loan program, as well as to make targeted investments in postsecondary education that facilitate college completion, assure continued state support, pave the way for high-quality, cost-effective educational opportunities.  These efforts combined will keep college affordable for students and families.