Roy Blunt On Student Loan Interest Rates

Jul 26, 2013

The White House said the average Missouri student borrower will save just over $1,500 this school year under bipartisan legislation approved this week in the Senate, which would undo a rate hike that took effect for subsidized Stafford loans on July 1.

Republican Senator Roy Blunt, a co-sponsor of the legislation, told students in Springfield Friday that the deal allows undergraduates this fall to borrow at a 3.86 percent interest rate. The bill stipulates that students will pay the current yield on the 10-year Treasury note plus 2.05 percent. Blunt said that means the interest rates will be that of what the federal government could borrow on that particular day for 10 years, even though students may take 25 years to pay their loan back.

“But students will know and their families will know how much that part of their loan will always have as interest,” Blunt said. “So the interest rate is permanent, until that part of the loan is paid off.”

Since the plan links rates to financial markets, it’ll cost more to borrow in the future if the economy improves, a concern among the bill’s opponents. 

“This will be the mixed emotion of the student. You’d want the interest rate to go up a little bit because that means a healthier economy and more likely chance you’re going to get the job you want. But obviously anytime you sign a loan document you want the interest rate to be as low as it could,” Blunt said.

President Obama has urged the House to pass the Senate’s plan, which he’s indicated he’ll sign.

Rates on subsidized Stafford loans had doubled to 6.8 percent on July 1 because Congress could not agree on a way to keep them at 3.4 percent. The new bipartisan measure in the Senate passed 81-18.