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  • Obama’s 2014 budget – impact on student loan rates
  • Posted By:
  • Staff Admin
  • Posted On:
  • 18-Apr-2013
  • We have heard the story of how our President did not pay off his student loan in full until he was married with two kids. He is of course speaking from experience based on which he has made sure the issue of higher education affordability is addressed in his 2014 budget.

    In keeping with his promise, the budget states that students and their families will be provide with loan assistance and grants to enable them to pay for post secondary education. This is imperative to ensure that by the year 2020, our country will have the highest proportion of graduates in the world.

    The budget is obviously complicated which has many implications for our students. In new loans, grants and work-study assistance, at least $155 billion has been allocated in the budget. As compared to the 2008 budget, this is a 59% increase. This will help at least 14.7 million students.

    Pell Grants program finds a lot of support from Obama. Through 2015-16, he wants to increase the funding and every student will receive $140 more in their loan. Though this is not much the trend is encouraging.

    The 2014 budget has ensured doubling of work-study programs. This is another hugely encouraging step that will benefit students. Students who are a part of federal work-study programs will be borrowing less.

    Eligible graduate and undergraduate students who are paying their college costs by working part time will be paid up to 75% wages through grants provided for participating institutions. In his speech at the Capitol Hill, Arne Duncan, our Secretary of Education said that this is our administration’s mission.

    In his budget testimony, he pointed out that education is an investment, not just an expense. We as a nation must make this crucial investment for the future of our nation. When it comes to rate of interest for student loans however, the budget is not all sunshine.

    Including Stafford loans, a cap on student loan rate of interest has been set by the Congress. There is an effort by Obama to tie the treasury market value to the interest rate on student loan. If this works out, the loan interest yardstick will be the ten-year treasury notes which are very low currently.

    When the notes rally with an upturn in the economy, this good news will translate to bad news. Last year Congress approved a 3.4 percent interest rate and Washington Democrats want it to remain at the same rate. Linking of market rates to student loans is also not supported by many education groups.

    According to The Institute for College Access and Success President Lauren Asher, actual rates for federal student loans could rise considerably as compared to the projected rates considering the fact that cap on rates have been eliminated by our President.

    Depending on the loan type, a fixed margin will be added to the loan rates of which are based on the 10 year Treasury note. Even if the new loans come with lesser rates of interest, for the life of the loan, the higher rate will be fixed.

    At the end of the day, all proposals are just that, proposals which have to be debated upon by Congress and voted for before any positive results can be enjoyed by our students.







 

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