First, thanks to everyone that has been commenting in Facebook on my posts. I have learned what I don’t know and will share some of this in a follow up blog entry. Again, thanks.
For today, the focus (or lack thereof) is subsidized, unsubsidized and direct loans. These are the loans where the current rates are in question due to the expiration of the law. First, let’s explain the difference between these 3 types of Stafford loans.
Subsidized: The “subsidized” term does not refer to the lower interest rate. It means that the government pays the interest on the loan as long as you are a full-time college student and until you are 6 months beyond being a full-time college student. This loan is allowed based on financial need and has a maximum loan amount of $3500 the first year and goes up by $1000 each year after that.
Unsubsidized: With this loan, interest accumulates on your loan and is added to the loan amount while you are a student. This loan is given at $2000 above and beyond the subsidized loan. This loan is also based upon need.
Direct loan: This is similar to the Unsubsidized loan but is not based upon need, as I understand it and is at a higher interest rate.
Ok, with that out of the way, let’s explain the current law before it expires. The rates are:
Subsidized: 3.4% fixed
Unsubsidized: 6.8% fixed
Direct Loans: 7.9% fixed
What will happen when the law expires? Subsidized and Unsubsidized loans will be at 6.8%. Will this happen? In short, NO. Both sides want to help students pay for a college education, but have disagreements on how it should be done. Here are the proposals:
1. HR 1911 – The week before last, the House Republicans pass this bill. It states that both subsidized and unsubsidized loans would be tied to the 10 year bond rate plus 2.5%. Given Friday’s close, this would put the current rate at 4.62%. The big “gotcha” here is that these loans would now be variable with a cap of 8.5%. Direct Plus loans would also be affected and would be have both the rate and cap 2% higher than the subsidized and unsubsidized rates. Interesting that this solution would have a lower initial unsubsidized rate.
2. Obama proposal: It is more similar than different. It proposes a similar plan but with different add’rs, no rate cap and an extension of protection for low income families with a max payment for student loans. The rates would be the 10 year note plus 1 and 4 percent for subsidized and unsubsidized loans, respectively, but these rate would be fixed for the life of the loan. There is no cap on future rates, but this wouldn’t be as necessary since the rates are fixed for the life of the loan. Also, his plan extends the income-based Pay as you earn program. This type of plan seems like the smartest proposal to me. With it being fixed, maybe the caps should higher, but the structure is the best structure.
3. There are other proposals: One proposal is to make the student loan rate variable at the cost at what banks lend at which is currently 0.75%. This will only cost our country more money at a time we cannot go more into debt. Also, there is another proposal put forth by a couple of democrats who I now have no respect for. Let’s see, let’s just extend the current program for another 2 years while we figure out what to do. Excuse me, you had a year to figure it out! Why should we as voters and tax payers have any faith that you will figure it out with twice as much time? These guys are morons who don’t want to put in the work to find a solution. But I digress…
I think we should lock democrats who support the president’s plan and republican moderates who support the speaker in a room until they come to compromise. The solution should have fixed rates at a minimum. What the rates should be, they have to negotiate. C’mon guys, you are close on this one. Show the American people you are willing to get things done!
Max Voltage Cycling 