USSA and PIRG Issue Briefing #Dontdoublemyrate

Click on the following links below for issue briefing and press release

Revenue Press Release FINAL 4.8

Revenue Brief FINAL 4 8 13



Frequently Asked Questions


Does the federal government make so much from student loans every year? 

  • Until recently, student loan borrowers generated revenue for private banks and lenders, which were middlemen in the federal student lending program.  In 2009, President Obama championed successful student loan reforms that removed the banks from the program and ended their high fees and abusive lending practices.


  • When we say profit at $36 billion, we really mean profit.  The congressional budget office already accounts for defaults, collection and forgiveness programs even if it is past the normal 10-year budget window.


What keeps triggering the threat of an interest rate hike?  

Ø       In 2007, Congress passed a college affordability plan called the College Cost Reduction and Access Act which gradually decreased the interest rate from 6.8 percent to 3.4 percent on subsidized Staffordstudent loans over the course of four years, from 2008 to 2012. Last year, Congress and the President temporarily extended the low rate for one more year.  Now Congress must renew the legislation before student loan interest rates double again, this July 1.


We had a temporary extension last year.  Isn’t it time for comprehensive reform?

Ø       Current college students, aspiring college students, and those borrowers already in repayment are clamoring for comprehensive reform.   The question is when and how.  With the July 1 deadline looming, we not only need student-friendly policy, but motivation from the President and Congress.  If that’s not possible, then we need another short term fix.


What is a subsidized Stafford student loan?

Ø      Staffordstudent loans come in two forms:  unsubsidized and subsidized.  ‘Unsubsidized’ mean that the student borrower pays the interest on the loan while in college.  These loans are available to all students, regardless of income. Currently, the interest rate on the unsubsidizedStaffordstudent loan is 6.8 percent.


In contrast, the ‘subsidized’Staffordstudent loan is available to those who pass a means test and qualify, based on need.  The federal government pays the interest on the loan while the borrower is in college.  68 percent of all subsidized student loan borrowers are from family incomes of less than $50,000.


Who will feel the impact of an interest rate hike?

Ø       Those impacted include current college students receiving subsidizedStaffordloans and those enrolling in a post secondary course after July 1 who will receive a subsidizedStaffordstudent loan.    About 7.5 million students will see their interest rate double.


Shouldn’t we try to rein in college costs in order to decrease student reliance on loans to pay for college?

Ø       Weakened state economies have squeezed college budgets, which in turn are raising tuition.  And that is another problem.   However, even if tuition were frozen at current levels, students would continue to assume significant debt.   What we can do at the federal level is to ensure that educational debt stays as low cost as possible.


How can we pay for an extension of the low rate? 

Ø       A one year extension of the 3.4 rate will cost $6 billion.  Last year, the extension was paid for by reducing a corporate tax deduction.


Shouldn’t we pay for this with money from within the education budget?

Ø       It makes absolutely no sense to ‘rob Peter to pay Paul.’  The goal here is to try and keep the overall cost of college and student debt down.  Reducing access to or funding of other aid or loan programs defeats the purpose. It won’t make a difference to students whether debt increases are due to interest rate hikes or increased borrowing (because aid was reduced). There are smart ways to pay for the extension as we saw last year.


In such a partisan environment, can this pass?

Ø       Traditionally, lawmakers on both sides of the aisle support student aid.  The College Cost Reduction and Access Act of 2007, which set the lower interest rate, was supported by 77 House Republicans, dozens of Senate Republicans and signed into law by President Bush.

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