It’s no secret that the cost of a college education is expensive.
Just how expensive?
According to the College Board, an association comprised of more than 5,900 schools, colleges, universities and other educational organizations, tuition plus other expenses — room and board, books and other supplies — cost more than $22,000 at in-state public colleges for the 2012-13 academic year.
With such a hefty price tag, most students end up borrowing money to help pay for college. And when they wrap up their education, they often have a large chunk of debt in addition to any degrees they earned.
But now, the millions of college students who will borrow money from the federal government for the coming school year can plan on lower interest rates than originally offered.
On Wednesday, the U.S. House of Representatives approved a Senate plan that allows interest rates on student loans to move with the financial markets. As The Associated Press has reported, it offers lower rates for most students now but higher ones down the line if the economy improves as expected.
Undergraduates this fall would borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.
Interest rates would not top 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents’ rates would top out at 10.5 percent. Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.
The new rates are retroactive to loans taken out since July 1 — the day interest costs for subsidized loans doubled to 6.8 percent.
The compromise that came together during the past month would be a good deal for all students through the 2015 academic year. After that, interest rates are expected to climb above where they were when students left campus in the spring, if congressional estimates prove correct.
As the AP reported, the White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges.
In all, some 18 million loans will be covered by the legislation, totaling about $106 billion this fall.
U.S. Rep. John Kline, the Republican chairman of the House Committee on Education and the Workforce, called the bill “a win for students and taxpayers.”
The bill was also hailed by U.S. Secretary of Education Arne Duncan, who said the move will be good for college students.
“Education is a cornerstone of a strong middle class, and keeping student interest rates low is just part of our commitment to making a college education accessible to every single American willing to work for it,” Duncan said. “As we continue to work on ways to bring down the soaring costs of higher education, we must remember that all of us share a role in ensuring that college is affordable for students and families.”
College students have a lot on their plates — attending classes, studying for exams, maybe even juggling school and work and family life. The cost of their education is surely another worry, but being able to depend on lower interest rates if they need a loan should help ease some of the pressure.
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