Heat on student loan rate hikes could turn into a federal profit

This summer has been hot, but not hot enough in D.C. to get Congress to agree on issues, especially when it’s a potential money-maker like student loans.

As you recall, that august body that meets in Washington, D.C., failed to prevent student loans from doubling on July 1. The rates were dropped by legislation that was meant to temporarily reduce the rate to help people go to school during the economic downturn.

However, as we’ve read and heard about for the last few years, colleges and universities have been jacking up tuition to levels that have left many a graduate buried in debt, even with the low rates.

Then, the Congress let the rates double , a move that can actually boost the amount of money coming into the government from Stafford Loans.

The public has been crying about the jump in rates, so Congress has come up with a Compromise, backed by the President.

However, some Congressmen and women aren’t so sure the compromise is a good thing. Sen. Elizabeth Warren, Mass.-D., pointed out the government could make $185 million in profit off the loans if the compromise’s adjustable rate is adopted.

Connecticut’s Sen. Richard Blumenthal has also voiced concerns about that profit margin in the past, though we’re not sure if he’s on board with the compromise, now that Obama is, too.

The White House put out its own statement today geared to each of the states.

According to the WH, “Under the compromise plan, a typical undergraduate borrower in Connecticut who borrows $6,840 will save about $1,527 over the life of those loans. Throughout the country, a graduate borrower who borrows $25,666 will save $2,913 over the life of those loans and the average parent borrowing $17,980 working hard to support their child’s college education will feel the relief of $2,066 in savings on the loans they take out next year.  Beyond saving money on their student loans, students and families will have the added protection of student loan interest rate caps in case market rates in the future become too high.”

No one, however, seems to be talking about how to stop costs from escalating.

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Rob Varnon