Agreement on Student Loan Interest Rate

June 28, 2012

After months of discussions on how to pay for a one-year extension of the current 3.4 percent interest rate on new federally subsidized undergraduate student loans, it appears that a deal has been reached, and just in time. On July 1, the current interest rate will double to 6.8 percent unless lawmakers can agree on offsets. The doubling of the current interest rate is expected to affect roughly 7 million students (at an average of $1,000 each) this coming school year and will cost approximately $5.9 billion.

A number of proposals (i.e. S.2343 and H.R. 4628) have been put forward by both parties on how to pay for the extension including eliminating a tax incentive for S-Corporations (an approach vehemently opposed by a number of business groups including NSBA) and repealing the Prevention and Public Health Care Fund included in the Patient Protection and Affordable Care Act (PPACA); however, it appears that Senate negotiators have settled on three offsets. According to Congressional Quarterly, the proposed offsets would include:

  • [a] change [to] the method used to determine how much money businesses must invest in employees’ defined-benefit pension plans;
  • an increase in the premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corp.; and
  • shortening the amount of time that full-time and part-time students are eligible for an in-school interest subsidy on their student loan.

Recent reports indicate that the Senate will likely link the student loan extension to the highway bill conference report, but nothing has been confirmed as of the publishing of this article. NSBA will continue to closely monitor this situation and will keep our members apprised of any developments. In the meantime, please follow us at @NSBAAdvocate or search for #dontdoublemyrate for real-time updates on the matter.