A Macro Perspective: Student Loan Relief? For Some.

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More and more students are borrowing for college and graduate school, and most everyone knows that in recent years the prices have been rising. But I didn’t know by how much. Turns out that "In the past five years, tuition and fees at public universities have risen by 57%."¹ That’s with over half of the students who attend public four-year institutions now borrowing from the federal government, and over 80% of students who attend private two- or four-year institutions now borrowing.²

Luckily for a lot of those borrowers, since 2006 new federal legislation has been working to overhaul the loan system with the intent to relieve debt. Among several changes, the interest rates for Stafford loans, the most popular of student loans, have been dropping--from the record-high 6.8% fixed rate (for fixed-rate loans made after July 1, 2006, and before June 30, 2008) to 6.0%, and now to 5.6%, and so on each year until the rate is halved at 3.4% in 2011–12. Too bad the rates are set to jump back up to 6.8% in 2013, unless Congress intervenes. Also too bad that graduate students are excluded from receiving the new lower rates.

One plus of the federal loan overhaul started this July 1. Now the amount you earn can determine the amount you have to pay back each month. The new option is called Income-Based Repayment (IBR). For those borrows who are eligible, most "IBR loan payments will be less than 10 percent of their income."³ Not bad. But the repayment plan doesn't reduce the principal you owe, and paying less each month means you're paying more in interest over time. For more information on IBR, try The Project on Student Debt.

Another change certainly looks impressive--it lowers interest rates to 1.88% or 2.48% (when the loan is in repayment mode) for borrowers who hold variable interest rates. But the change only affects students who hold variable rates, and on July 1, 2006, the government stopped issuing Stafford loans at variable rates of interest.

So if you used Stafford loans to borrow before July 1, 2006, you're in luck, and if you’re borrowing with them now, you’re also in luck. But if you’re a graduate student, or if you borrowed in the small twenty-four-month window during which the Stafford rate became fixed at 6.8%, well, you got the shaft.

If you fall into the shaft category, perhaps writing to Congress is your only hope. It wouldn’t hurt to try. In your letter, please feel free to pilfer anything you read in this post.

Resources for student loan relief:

The Project on Student Debt. Here you can also sign petitions to Congress for stronger debt-relief legislation and share your own experience with student loan debt.

The Institute for College Access & Success.

Student Loan Borrower Assistance, made available by the National Consumer Law Center. A wealth of information, including your legal rights as a borrower.



[1]The Project on Student Debt, "Quick Facts about Student Debt."

[2] Ibid.

[3] "Income-Based Repayment now Available," July 6, 2009, The Institute for College Access & Success, available at http://views.ticas.org.