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Education news and issues in the Ozarks.

Blunt Highlights Student Loan Certainty Act, New Interest Rates

Sen. Blunt speaking Friday inside OTC's Information Commons Atrium/Credit: Scott Harvey

U.S. Senator Roy Blunt (R-Missouri) Friday touted the recently-approved Senate solution to student loan interest rates during stops in Springfield and Hollister. KSMU’s Scott Harvey has more.

http://ozarkspub.vo.llnwd.net/o37/KSMU/audio/mp3/blunt-highlights-student-loan-certainty-act-new-interest-rates_65033.mp3

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. But the bipartisan measure in the Senate, which passed 81-18 this week, allows undergraduates this fall to borrow at a 3.86 percent interest rate. Since the deal links rates to financial markets, however, it’ll cost more to borrow in the future if the economy improves.

“This will be the mixed emotion of a 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 kind of 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.

The Missouri Republican was speaking to students at Ozarks Technical Community College, where collectively students received $39 million in Stafford loans last year, the biggest source of federal income on the campus. Pell Grants accounted for $34 million at the school.

OTC Chancellor and President Dr. Hal Higdon says he’s happy with the Senate’s solution, adding that determining loan rates based on the market is “the way business works,” and that there tends to be a misunderstanding that government can continue to run on a deficit.   

“Our state government does not run in the hole, but our federal government does, and we have a trillion dollar deficit. And we’ve got to start making decisions that are smart, market-based decisions to get us out of that. Because we’re going to all pay the price down the road,” Dr. Higdon said.

The Congressional Budget Office estimated the bill as written would reduce the deficit by $715 million over the next decade.

The Senate agreement stipulates that students will pay the current yield on the 10-year Treasury note plus 2.05 percent. Blunt says 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. So the interest rate is permanent, until that part of the loan is paid off.”

Blunt says 60 percent of citizens qualified for unsubsidized loans last year through the Stafford program, paying a rate of 6.8.  But under the Senate’s bill, both subsidized and unsubsidized loans will be treated the same way, meaning all undergrads will pay the 3.86 rate this fall, which accounts for a half percentage jump for some, and a nearly 50 percent decrease for others.   

Opponents of the bill point to concerns over higher interest rates for students as the economy improves. Under the proposal, there is a limit on how high the interest rates can go for undergrads, graduates and parents.  

16 Democrats, one Republican and an Independent voted against the measure. Missouri’s Democratic Senator Claire McCaskill did not cast a recorded vote.

The White House has put together a state-by-state list of average savings under the bipartisan plan for the upcoming school year. For a typical Missouri student borrower, it amounts to just over $1,500.

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