THE WHITE HOUSE
Office of the Press Secretary
MAKING COLLEGE MORE AFFORDABLE BY LOWERING STUDENT LOAN INTEREST RATES Well into this Year, Many Doubted That Student Loan Interest Rates Would Drop
"This summer, the interest rate on federally backed student loans is set to drop from the current 8.25 percent.... But chances that students will ever see those savings are about as slim as finding a campus parking space during orientation or a private moment in the dorms. The nation's biggest student lenders have banded together and are lobbying Congress to scrap the government-mandated cut, which they say will wipe out their returns." --Knight Ridder Tribune Business News, February 27, 1998
The Higher Education Amendments of 1998 adopt the Clinton Administration's proposal to slash student loan interest rates. Specifically, the new law:
Cuts Interest Rates on New Student Loans by Almost a Full Percentage Point -- Saving Students $11 Billion Over the Life of Their Loans. The new law extends for 5 years the low student interest rate on new loans, which was first won in the 1993 budget, proposed again in February 1998 by Vice President Gore, and available on a temporary basis since July 1. This lower student rate is set at the 3-month Treasury Bill plus 2.3% (currently 7.46%), a substantial drop from the pre-July 1 rate of T-Bill plus 3.1% (about 8.25%) on new student loans. The low rate is now available on all new student loans in the Direct Loan and Government-Guaranteed Loan (FFEL) programs. Students will save roughly $50 per $1,000 of debt, over a ten-year repayment period, as result of the interest rate reduction.
Allows Borrowers to Refinance Outstanding Loans at the Lower Rate. The new law extends for four months the current 7.46% interest rate on Direct Consolidation Loans. After 4 months, the interest rate on Direct Consolidation Loans will rise to the weighted average rate of the underlying loans, rounded up to the nearest one-eighth and capped at 8.25%.
The Administration is disappointed that the law contains an unnecessary new lender subsidy and that it does not extend the low Direct Consolidation Loan rate for a longer period of time or ensure that it is available to borrowers who consolidate their student loans through private lenders in the FFEL program. The Administration hopes Congress will revisit these issues in the future.
Helps Millions of Americans Pay for College.
More than half of all undergraduates have to borrow money to pay for college today, and more than half of those with student loans have incomes under $30,000.
An elementary school teacher in Boston, who earned a Master's degree in Early Childhood Education and is struggling to repay $43,000 in student loan debt on her $16,000 annual income, can save about $3,500 in interest from the new low interest rate.
A young married couple trying to pay back $160,000 in loans from law school while working in public interest jobs can save almost $25,000 in interest from the new low interest rate.
Builds on Clinton Administration Initiatives to Make College More Affordable for Students and Families. These include: the historic higher education tax cuts enacted last year -- the HOPE Scholarship and the Lifetime Learning Tax Credit, the flexible repayment options available through Direct Lending, the expansion of College Work Study, AmeriCorps, and the increase in the maximum Pell Grant.