News & Events
obama studentloans 630x420Buried in President Obama's proposed budget is a big change to federal student loans. According to the Department of Education's draft budget, Obama wants the interest rate on federal loans to be pegged to market rates annually. Currently, the rate is 6.8 percent for most loans, with a subsidized rate of 3.4 percent for needy undergrads. Congress set the current rate for loans in 2001, and in 2007 voted to lower the subsidized rates. The economy's changed since then, but the rates haven't been adjusted to reflect today's low-interest-rate environment.
Under Obama's proposal, the interest rate on student loans will be set each year based on the government's borrowing costs. For subsidized loans, the rate would be 0.93 percentage points above the rate on a 10-year Treasury bond; unsubsidized loans would be two percentage points higher than that, and grad student loans one more percentage point higher still. So at the current 10-year T-note rate of a little over 1.8 percent, subsidized loans would be about 2.75 percent, unsubsidized loans would be 4.75 percent, and grad student loans would be about 5.75 percent—all lower than the current fixed rates.

Of course, interest rates will rise as the economy improves, so some consumer groups criticize Obama's plan for not having a cap on rates. In the days when federal loans previously were pegged to market rates, they were capped at either 9 percent or 8.25 percent, depending on the year.

Obama's plan does expand the Pay As You Earn program that caps federal student loan payments at 10 percent of a borrower's income, and forgives the balance of the debt after 20 years (or 10 years for graduates in public interest jobs). That could effectively reduce rates for graduates with low incomes, or who borrow a lot (and therefore have big balances that are ultimately forgiven).

Republicans generally support tying federal student loan rates to the broader market. It's not clear how Democrats will react. If Obama's proposal doesn't go through, and Congress doesn't make other changes, the rates on subsidized loans are set to double to 6.8 percent this summer.

By Karen Weise, reporter for Bloomberg Businessweek in New York.
Follow her on Twitter @kyweise.

Baja manufacturing tours california co production mexicoWOULD YOU LIKE TO VISIT MEXICO'S FIRST CLASS MANUFACTURING OPERATIONS IN ACTION?

Don’t miss this chance to have access to Mexico’s workforce, productivity and their commitment to quality standards and certifications.


REGISTER TODAY

Border Advocates Push for Port of Entry Improvements
16 May 2017 21:27 Border-entry-improvements

The Smart Border Coalition held a Stakeholders Working Committee meeting on Thursday, May 11, at the San Diego Foundation to discuss their goals to improve the United States and Mexico border. Executive Director of the Smart Border Coalition Gustavo De La Fuente, presented the SBC report that inclu [ ... ]

Read more
Aerospace Arizona Making Connections in Tijuana, Mexico
12 May 2017 20:24 Aerospace Industry Factor Tour with CPI - Mexico Shelter Companies

The Aerospace Arizona Association led a delegation of aerospace industry and advocacy leaders on a 2 day mission to Tijuana. Several notable meetings with the Tijuana Mayor and his cabinet, the Tijuana Economic Development Council and local Mexico Shelter Companies provided unique insight into poten [ ... ]

Read more

S5 Box