On August 9th President Obama signed into law a student loan bill that allowed interest rates on loans to undergraduate college students to fall back to 3.86 percent. The interest rate on graduate student loans will be 5.41 percent.
It is entirely likely that most high school and college students neither know nor really care what this all means. It is unlikely that most students have ever had a loan they had to repay and if they did, concern was how much the payment was and not how much it would eventually cost to pay it off. Without President Obama’s signature on this bill that defines how much the federal government should subsidize student loans, students in the next several years will face heavy loan repayments.
Under the new law, the government establishes variable interest rates on Stafford loans for undergraduate college students, but caps the rate at 8.25 percent. The variable rate each year is tied to the rate on 10-year Treasury notes, plus 2.05 percent. The law also sets the interest rate on loans issued to graduate or professional students at the rate on high-yield 10-year Treasury notes plus 3.6 percent, but caps that rate at 9.5 percent.
For any student, investing in oneself is still provides the best long-term returns. Students should be smart, and do everything they can to offset the cost of their education with scholarships, grants and through federal work study. Take loans only when absolutely necessary and then use that money wisely. Only take what is needed to survive college, it will make life after college much more enjoyable.