Congress Doubles Up, Extends Student Loan Subsidies While Funding Transportation Programs

As we mentioned the other day, the clock was ticking on Congress to agree on an extension to subsidies that would keep interest rates from doubling on federal Stafford student loans, and that this agreement would likely be tied to a bill recertifying lawmakers’ authority to spend money on federal transport initiatives. Well, with a vote of 373-52 in Congress and 74-19 in the Senate, that bundle of legislation is now headed to the White House.

The measure will keep interest rates on Stafford loans at 3.4%. They had been scheduled to double to 6.8% on July 1 with the expiration of a bill that had gradually stepped the interest rates down during the last five years.

“Millions of students are struggling to afford college and face the prospect of graduating with a mountain of debt,” explains Suzanne Martindale, staff attorney for Consumers Union. “The last thing they need is for interest rates to double on student loans. This agreement offers some much needed relief to students who are working hard to pay for the education they need to succeed. Senate leaders deserve credit for finding a bipartisan solution to keep these student loan interest rates low.”

The passing of the transportation portion of the bill means that lawmakers can continue to fund federal highways and other transit programs without interruption. It also includes a number of auto safety initiatives:

*The bill provides grants for states that pass and enforce anti-distracted driving laws and graduated drivers’ licensing laws for teenagers.
* It prioritizes new safety standards for child car seats and new research into emerging child safety concerns
* The bill sets new standards to make vehicle recalls more effective, allowing the National Highway Traffic Safety Administration (NHTSA) to require automakers to send additional notifications if NHTSA determines that the consumer response to the initial alerts was inadequate.

“There was a long debate over whether to include safety measures in this bill, and we’re really pleased that Congress chose to make safety a priority,” Ioana Rusu, regulatory counsel for Consumers Union, tells Consumerist. “These provisions will go a long way to make our roads safer.”

She adds, “Too many drivers are paying more attention to their phones than the road, and these measures will definitely help curb distracted driving. We’ve found that one of the best ways to prevent teens from texting behind the wheel is to educate them about the fatal risks, and this bill will help bring that message home.”

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  1. Costner says:

    And yet because students are required to pay a minimum of $50 a month… very few will see a change in their monthly student loan payments.

    100% election year politics. Had this been 2014 this wouldn’t have passed.

    • melya18 says:

      The whole “minimum of $50 a month” is not true for all repayment plans with federal loans. I have several that are in repayment and my payments are currently less than $50 a month.

    • Jaynor says:

      Methinks you’re underestimating the size of the balance on student loans. $50 would be a really tiny monthly payment.

    • rugman11 says:

      $50 is a small payment. A student who takes out the max in undergraduate Stafford Loans ($46000) and is on the extended repayment plan (30 years) would have seen their payments go up $100/month.

      • Costner says:

        Yes but these rates have only been in effect for a year. It doesn’t impact all those students who took out loans four or five years ago. See the link I provided above for more detail, but long story short this is more about politics and less about saving students money.

        If this was really about the concern surrounding student debt, there are a hundred other ways to address it. Civil service forgiveness, longer term interest rate reductions – forebearance extension programs, bankruptcy law revisions, etc, etc.

        • bwcbwc says:

          Even if the typical student only sees their payment go up by $20/month due to higher interest rates, that’s still about $4800 for a 20 year payment period. Not chump change. And considering that other forms of debt are at historic low interest rates, 6.8% for a loan that can’t be cleared by bankruptcy and has numerous options for garnishment (including students’ tax refunds) is a pretty high interest rate. Somebody’s making money hand over fist on these subsidies. Whoooo could it beee? Could it be…WALL STREET?!?

    • Coelacanth says:

      If someone who attended college is unable to afford the $50 minimum payment of their student loans, they have much bigger problems they must be dealing with…

      This legislation lowers the overall total cost of the loan by allowing borrowers to pay down their principal more quickly.

  2. SirWired says:

    And why is there anything to do with student loans in a transportation bill?

    • Costner says:

      Because Congress.

      That is all.

    • StarKillerX says:

      Becauses this is how Congress slips things past the American public, if bills were all small and understandable more people would realize what a group of shysters we have running the country because it’s hard to hide things in single page bills.

  3. dush says:

    Let me get this straight. Millions of students are struggling to afford college and face the prospect of graduating with a mountain of debt with the current interest rate. So they pass a law to keep the rate the same?

    • Costner says:

      Not exactly. The original rate was 6.8%, but Congress previously dropped that to 3.4% in order to win some votes and act as if they care about student loan debts. The original bill was set to expire thus the interest rates would return to 6.8%, so now that it is an election year both parties got together and hammered out a deal to keep them at 3.4%.

      It only applies to Stafford Loans, and students can only borrow a specific amount of money (typically $5,500 to $7,500 max per year for Stafford subsidized loans). These loans have a minimum payment of $50 per month, so dropping the interest rate has zero impact to most students other than it will shave some months of payments off on the back end.

      Therefore if you think millions of students will suddenly find their financial troubles resolved due to this bill you are misinformed. It is a political move which will have very little impact on the monthly finances of the vast majority of borrowers who are impacted.

      • Jaynor says:

        Outstanding balance/rate of repayment are still impacted. Dismissing it out of hand because of a monthly payment limit is an odd position to take.

      • dush says:

        My point exactly. Congress didn’t actually do much of anything either way by passing this.

    • rugman11 says:

      Where exactly would you suggest a bunch of 18-22 year olds with no credit history go to obtain loans with no collateral at 3.4% interest or even 6.8%?

      • dush says:

        Congress is doing the same thing with this “let’s get more and more people into college” as they did with the “let’s get more and more people into houses” scheme.

        • muzzleme says:

          College or houses don’t mean squat without jobs on the economy. But it is money for those who sell those products.

          In order to divert that thought this is why they intertwine to two different subjects in the same bill. Beside making a bill too long to read by vote time it diverts attention to or from the actual bill muddying up a clear picture of cost and consequences. Throw in the back room deal makers and you have what we call congress.

      • bwcbwc says:

        No collateral is pretty much irrelevant on loans that can’t be cleared by bankruptcy and are easily collected by garnishing wages/tax refunds and most other income. The only way to avoid paying off a student loan is to be unemployed for life.

  4. TuxthePenguin says:

    “Millions of students are struggling to afford college and face the prospect of graduating with a mountain of debt,” explains Suzanne Martindale, staff attorney for Consumers Union. “The last thing they need is for interest rates to double on student loans. This agreement offers some much needed relief to students who are working hard to pay for the education they need to succeed. Senate leaders deserve credit for finding a bipartisan solution to keep these student loan interest rates low.”

    Wow, I need spin like this. You could have said “they need for interest rates to stay at half the normal level” and been just as accurate.

    And, I hate to break it to you, most of the people paying on these loans already have the education. And its not always for an education they need to succeed either…

  5. AcctbyDay says:

    Wouldn’t it be lovely if rates could go down on loans already disbursed.

  6. badgertale says:

    If we’re in debt several trillion dollars then where are the subsidy monies coming from? Is there some stash of money somewhere that we don’t know about? Also, where are the new Health Care Tax Law subsidies coming from? HELLO AMERICA…WHAT DO YOU THINK A SUBSIDY IS! FREE MONEY?….NO, IT’S YOUR MONEY OR OBAMA-NOPOLY MONEY THAT COMES OUT OF THIN AIR!!!

    • Jaynor says:

      Perhaps we could cut our enormous defense budget to provide for this… or increase the capital gains tax to match other income taxes?

      I’d rather we invest in the education. Do you know that nearly 59% of House Members are completely ignorant of climate science? This in the “most advanced” nation on earth.

      • dangermike says:

        I’d be surprised if less than 59% of climate scientists aren’t completely ignorant in climate science.

  7. SabreDC says:

    You left out the part about how graduate students will now have to make interest payments immediately after disbursement rather than after graduation.

    • thomwithanh says:

      Graduate students have interest accuring on their loans starting at disbursement (in other words they no longer receive subsidized loans that covered the interest while they were in school), but unless something changed they still can defer the actual payments until graduation.

      If they were required to make payments while in school, most students would qualify for $0 or very low payments under IBR given the fact that many of them only work part time.

      • SabreDC says:

        You are probably right but some sources are reporting that students will be responsible for paying the interest while in school: http://www.chicagotribune.com/business/breaking/chi-no-more-grace-period-on-student-loans-20120628,0,4384922.story

        But I’m also finding news articles that say the the subsidy is simply eliminated and the loan accrues interest but nothing else about paying it while in school, as you said. So, if that’s the case, thank you for clarifying.

        • Willow16 says:

          “But I’m also finding news articles that say the the subsidy is simply eliminated and the loan accrues interest but nothing else about paying it while in school, as you said. So, if that’s the case, thank you for clarifying.”

          That’s my understanding of unsubsidized student loans. If you qualify for financial aid, you are offered a subsidized loan for $3,500 and an unsubsidized loan for $2,000. The government pays the interest on the subsidized loan while you’re in college and the interest on the unsubsidized loan just keeps accruing. I do know of parents who pay the interest on their child’s loans each month so it doesn’t keep accruing and the child will only have the original balance at the end of college.

          • Willow16 says:

            Also, if you don’t qualify for financial aid, you can only get the $5,500 loan unsubsidized.

  8. dangermike says:

    So yeah… making it easier to borrow more money than students can hope to pay back and giving it to these already overpriced schools makes education more affordable how?

  9. aerodawg says:

    Fantastic! Now my wife and I get to pay not only the principle and interest on our loans but the interest on somebody else’s loans too! HAPPY DAY!