The government continued its fiscal policy of kicking the can down the road by extending low interest rates on government issued debt to students. Interest rates were expected to jump to 6.8%, but that has been pushed aside until July 1, 2013. Still, the decision left out a major provision that will undoubtedly hurt some students.
Low interest rates extended
The interest rates on government subsidized Stafford loans were scheduled to increase two-fold or 3.4% to 6.8%, which would have impacted almost 8 million students. Specifically, many students would have been expected to pay $5,000 in additional interest payments if they borrowed the $23,000 maximum amount available over a four year period. To compare, other student loans such as the unsubsidized Stafford loan currently carry an interest rate of 6.8%, but the government doesn’t subsidize the student for that loan while they are attending school.
Bye, bye grace period
One of the key provisions that was left out of the deal relates to when undergraduate and graduate students must begin paying off their student loans and interest. Specifically, the six month grace period that allowed undergraduate students to hold off paying off their loans after they graduate is now gone. The absence of this provision has serious implications for those affected given that the job market is still very weak for recent graduates. The impact is even worse for those in graduate school. Graduate students will only be eligible for unsubsidized Stafford loans which requires that the students payoff their loans and interest while they are at school and after they graduate.
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