You have probably seen the news lately about how the student interest loan rate doubled at the beginning of the month. With all the coverage, there is bound to be some misinformation, and before panicking, make sure you understand just how it will affect you. Politicians and the media like to play things up for ratings and to make the “other guy” look bad. There is a lot more to the increase than interest rates simply doubling.
It is true that the loan rate has increased from 3.4% to 6.8%, and the arguments for and against the increase are all good ones. However, this increase only applies to new loans. Any money that was borrowed before July 1st will retain the lower rate. Likewise the rate does not apply to all new loans. The increase only affects subsidized Stafford loans; the loans that have interest payments waived while the student is in school. Other loans are still available at the lower rate. Even at nearly 7%, these loans are quite a good deal.
Have you tried to get a loan recently? Did you notice that the lender is requiring a lot more information to finish the paperwork than they did just a few years ago? Banks have tightened their belts and are doing a much more thorough job of checking up on borrowers before they simply hand out money. And one of the biggest thing holding borrowers back is low credit, or no credit. Students, very often, do not have a credit score. So put yourself in a lender’s shoes. Would you want to loan money to someone that has no credit, so that they might attain a degree that could possibly help them land a better job in order that they may pay off the loan? Most likely you would not. The government is lending money to very high risk borrowers, and a very reasonable interest rate given the circumstances.
Interest rates have been rising everywhere recently, not just for student loans. And in order to get the government back to a healthy financial state, politicians have to cut spending and increase revenue. Increasing the student loan rates is just one of the ways they are doing so. If you already have student loans, you are not affected by this increase. If you are planning to take out student loans, remember that you are still getting a good deal, and your degree will help you earn the extra money needed in order to pay back those loans.
How do you feel about the student loan increase? Will it help or hurt the economy?
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