Thoughts and Lessons from the Interest Rates Doubling

Michael Lux Blog, News, Student Loans 19 Comments

It happened. There were months of debate. Representatives in the house submitted their plans. Senators offered their plans. Alarm bells about the dangers of the student loan crisis were rung. For a while it even seemed that the democrats AND the republicans agreed that something needed to be done. In the end, nothing happened. As of today, July 1, 2013, interest rates on Federal Stafford Loans are now 6.8% – exactly double what they were just yesterday.

As I am neither a politician nor a political scientist, this entire student loan interest rate debate was a real education to me. I created this website to help people manage their student loans, and because this debate affected many of the people I seek to help, I have been a close watcher of recent events. Over the past few months I have learned a lot about our government, its people, and the realities of the student loan debt.

Here are the lessons I learned:

  • Even if all members of the Senate agree on something, it doesn’t mean that a bill will pass. Seeing how close to a consensus everyone was and how we ended up with a law that nobody wanted was especially difficult to watch.
  • The change in the student loan interest rate could cost borrowers thousands of dollars. However, in many ways, it does not matter. The real problems facing higher education and funding are the high price of college and the absence of consumer protections in lending.  Lower interest rates would not do anything to solve this problem.
  • Last year the federal government made $51 billion on student loans. Today they doubled interest rates. Not only does this just seem like bad fiscal policy, it just seems wrong for the country to profit off of students trying to further their education.  Even if you dispute the profit margin, the fact that there is a profit margin on these loans is bothersome.
  • I’ve been lucky to meet some really amazing people. One of the awesome things about the internet is how fast great ideas and knowledge spread. Our government may have its flaws, but this country is full of greatness, and I have no doubt that we will find our way out of this mess.

Even thought the results were not what I would have liked to have seen, I’m really looking forward to refocusing on guiding people who are trying to deal with their student loans. I’ve already begun the research on articles to help people get their loans out of delinquency status, and also for defaulted loans. I’m also working on an in depth analysis of how student loans can affect your credit and how your credit can affect your student loans.

This site is still relatively new and in many ways it is an experiment in progress. If there is anything that you would like to see changed, odds are there are many others who feel the same way. Please let me know. Constructive criticism is the most efficient way to make this the best resource possible.

As always, if you have any questions regarding your student loans or would like any advice, please feel free to ask.

How do you feel about the doubling of student loan interest rates?

  • Very interesting post Sherpa! You know we tend to disagree on some of the issues with the reform but this is honestly just crazy. How in the heck could the let that one go. Well one answer is to many people are making money on this one. If this was the housing market it would be a war going on if rates doubled in one day. Good luck with the research and I look forward to learning more and reading your posts.

    • Thanks Thomas! I really like your analogy to the housing market. Some owe so much on their loans that they are the equivalent of a mortgage. I think that people would be outraged if mortgage prices randomly doubled due to Congress.

    • Agreed. My biggest problem with this is that it “randomly” doubled the interest rate. Interest rates for student loans should not be random…that just makes no sense at all.

    • Well said. Even banks have a reasoning behind interest rates. Student loan interest rates have nothing to do with market conditions or risk associated with the loan. It does seem a bit absurd.

  • Tough! One more reason to borrow as little as possible and pay it off asap.

    • Very true! The higher the interest rates the more urgent it is to pay it off ASAP.

  • I paid 6.8% on my student loans from the day they were born till the day they died. While the extra $3.40 per hundred on student loans can add up to a lot, I think people should focus on the bigger picture: paying it off for good.

    • Definitely. Maybe they can use this bad break as an inventive to push them to get paid off sooner rather than later.

  • “The real problems facing higher education and funding are the high price of college and the absence of consumer protections in lending”

    Yup! Well said

    • Thanks! Lets just hope that we can start fixing these problems in the very near future.

    • I couldn’t agree more!

  • “The real problems facing higher education and funding are the high price of college and the absence of consumer protections in lending.” That is really the big issue the increasing cost of education. We continue to hear about the increasing student debt and the rising rates. It is rare to hear a discussion on why “not-for-profit” college costs continue to increase.

    • I don’t know that its that rare to hear about “not-for-profit” cost increases. State government spending on college has gone down significantly and this has been a major factor in the increasing cost of education.

  • I’m Canadian so it didn’t have an impact here, I did hear about and was shocked to see that nothing happend to stop it. Yes, its doesn’t seem like a lot when you break it down, but for recent grads who have a hard time having ends meet, its going to change their way of life.

    • Its really a bummer. It sounds like just a slight increase, but you are exactly right, for some it means changes to a way of life.

  • That seems really unfortunate. I did not enjoy my student loans, and was so glad to be done with them years ago. The idea that rates could increase so much is not cool for those with the loans, and speaks to how these loans in general are such a problem.

    Bigger picture, I agree on the concept of the cost of education getting out of control. While I believe education is absolutely critical, it’s where someone goes that can determine good or bad ROI – and student loan pain.

    • Well said. Your comment really articulates the core problem with student loans. Not long ago a college education had a good ROI no matter where you went. Those days have ended and as a country we have not yet made the proper adjustments, both in our mindset and our laws.

  • Tracy

    Thank you Michael for posting your plans to put together information to help people get their loans out of delinquency status, and also for defaulted loans. How these loans impact our credit will also be valuable information. My credit score is still remarkably at 720. However my income to debt ratio is usually what is posed as the problem. I will make sure and promote your site on station once the show starts mid July.

    Was watching CSpan for a short bit earlier. They were talking about student loans among other things. Lamar Alexander is very persistent and really pushing his legislation. I do not like his or Obamas legislation at all but it seems to be the most likely to pass as you pointed out. They will vote tomorrow and it will be retroactive as I’m sure you know.

    Thanks for another informative and interesting article.

    • Thank you for your support Tracy. It is much appreciated.

      I’m happy to see that I am not the only one who is closely following the latest developments on student loans. With your credit score and attention to the issues, I’m surprised that you haven’t been able to consolidate and get better rates. You will have to keep me posted on if you have any luck on that front.