20120322_96 Elizabeth Warren at IBEW

Student loans cost more starting right now, but maybe less a little later

On the same day CNN reported, “Student loans to cost more this fall,” U.S. Sen. Elizabeth Warren filed a bill to make them cost less.

It was a good-news-bad-news Wednesday for college students. First, CNN crunched numbers from the Congressional Budget Office’s April estimates and concluded, “Students taking out government student loans could pay nearly a percentage point more in interest rates.”

That’s because Congress, in a rare bipartisan move last summer, voted to keep federally subsidized student loan rates low — but only for a little while. It accomplished this by linking the interest rate on those loans (called Stafford loans) to the bond market.

Since bond rates were low last summer, you could nab a Stafford loan for 3.86 percent. (That was figured on the yield for the 10-year Treasury note at the time, plus 2.05 percent added just because.)

But with those yields rising, so are the interest rates on student loans. While college seniors might feel a pinch, freshman are in for a shock. For seniors, “If they take out the maximum government student loans available for a year of $5,500, it could mean an additional $260 in interest payments over a 10-year period,” CNN reports.

But freshmen? “They could pay an additional $1,650 over the life of the loans.”

Get help with your undergraduate or graduate school student loan debt.

The Warren omission

On the same day those scary new numbers came out, Sen. Elizabeth Warren (D-Mass.) touted her solution: The Bank on Students Emergency Loan Refinancing Act. If it passes, the act will essentially undo what Congress set in motion last year.

How? By allowing students to refinance their student loans just like homeowners do with their mortgages. And Warren — who voted against the bond-loan tie-in last year — wants this concept extended to students with private loans, too. Her act would join five other government programs that offer student loan debt relief.

“Allowing students to refinance their loans would put money back in the pockets of people who invested in their education,” Warren says. “These students didn’t go to the mall and run up charges on a credit card.”

But if Warren gets her way, Congress will be running up its own bills. “Right now, it’s estimated to potentially cost the government over $60 billion in student loan interest payments,” Forbes reports. “That’s a huge problem for many members of Congress, who don’t want to raise taxes or cut other programs to pay for it.”

Indeed, Warren has 23 co-sponsors for her act, but they’re all Democrats. Unlike last year’s student loan agreement, this one hasn’t seen any bipartisan support. Warren told The Wall Street Journal, “I would be delighted to work with the Republicans to find a way to pay for this,” but in a midterm election year, few Republicans are going to be as happy to do that.

Stay tuned.


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