WashPIRG Report Shows Cutting Student Loan interest Rates in Half Would Save Washington Students Thousands of Dollars

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January 11, 2007
Nicole Allen, WashPIRG

206 543 9628, nicole@washpirgstudents.org

New Report: Cutting Interest Rates in Half Would Save Working and Middle Class Washington Students Thousands of Dollars in Debt

A Congressional proposal to cut student loan interest rates in half will save the average lower and middle income borrower $4,420 over the life of their loans, according to a new report by WashPIRG.

The Congressional proposal, which the House is expected to vote on next week, would lower interest rates on undergraduate subsidized Stafford loans over the next five years until they are cut in half to 3.4% starting in 2011. In 2004-2005 more than 5.5 million students took out subsidized Stafford loans to pay for college.

"Expanding access to college and technical education for American students is important for the future of this nation," said Congressman Dave Reichert. "Reducing interest rates on student loans will help students afford to continue their education after high school. It is only part of the solution to expanding access to higher education, however. We must also look at ways to make tuition more affordable for students, as ever-increasing tuition rates are prohibitive for many prospective low and middle-income students."

In 2004-5 47,631 Washington students at 4-year colleges took out subsidized Stafford loans. The average borrower graduated with $14,594 in loan debt.

By lowering interest rates on subsidized Stafford loans, Congress would save Washington college graduates thousands of dollars over the life of their loans:

The average four-year college student in Washington starting school in 2007 with subsidized Stafford loans would save $2,410 over the life of his or her loans under the proposed legislation.
When the interest rate cut is fully phased in, the average four-year college student in Washington starting school in 2011 with subsidized Stafford loans will save $4,670 over the life of his or her loans.

"There is no better investment one can make in one's future than going to college," said University of Washington President Mark A. Emmert. "Making the cost of doing so affordable to low and middle income students and families helps open wide the doors of opportunity and possibility. We should do everything we can to keep the cost of borrowing affordable and enable hard-working students to finance their education."

At the University of Washington, 7,453 students took out subsidized Stafford loans in 2004-5 at an average of $13,974 per 4-year student.

The average UW student starting school in 2007 with subsidized Stafford loans would save $2,310 over the life of his or her loans under the proposed legislation.
When the interest rate cut is fully phased in, the average UW student in Washington starting school in 2011 with subsidized Stafford loans will save $4,470 over the life of his or her loans.

“Reducing the burden of student debt will help borrowing students to concentrate on what is really important – our education,” said Cullen White, the President of the Associated Students of the University of Washington. "With young voter turnout rates on the rise, the issue of student aid is becoming more and more relevant to national politics. We hope Congress will continue to make higher education more affordable and accessible for all youths in America."

About 5.5 million students borrow subsidized Stafford loans every year. Of those borrowers, 3.3 million attend four-year public or private non-profit institutions. According to the Congressional Research Service, 75% of traditional-age subsidized Stafford borrowers come from families with incomes of$67,000 or less. The median income for an American family of four is $65,000.

“Students cannot learn or perform at the same level if they spend too much time working to afford college,” said Dr. Gail Stygall, Chair of the University of Washington Faculty Senate. "Less financial pressure can increase the overall quality of an education, and allow students more freedom in their careers after college."

The policy proposal analyzed by WashPIRG would cut the fixed interest rate on subsidized Stafford loans for undergraduates from 6.8% to 3.4% over the next five years. Loans originated during the intervening five years will be set at fixed interest rates of 6.12% in 2007-08, 5.44% in 2008-09, 4.76% in 2009-10, 4.08% in 2010-11, and 3.4% from 2011 forward. After graduation, students would be able to consolidate their loans into one loan at the weighted average of the interest rates of their various loans.

All federal Stafford loans receive two forms of government support: the federal government covers the cost of the loans to lenders in case of student default and provides financial subsidies to insure lenders make a profit. Stafford loans are considered “subsidized” when the government pays the interest charges on the loan while the student is in school.

“Lowering interest rates on loans is a great first step towards providing students and families with a more affordable college education,” said Shirin Ebrahimi, the Campaign Coordinator for WashPIRG. “We call on Congress to continue helping students pay for college by increasing need-based federal student aid and by passing broad protections for student borrowers, such as limits on the percent of income that can be required for student loan repayment.”

The House of Representatives is scheduled to vote on the plan to cut interest rates during the first 100 legislative hours of the 110th Congress.

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