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Bruce Speight,
WISPIRG Foundation

New Report: Cutting Interest Rates In Half Would Save Working And Middle Class Wisconsin Students Thousands Of Dollars In Debt

A Congressional proposal to cut student loan interest rates in half will save the average lower and middle income borrower $4,420 over the life of their loans, according to a new report by WISPIRG.

The Congressional proposal, which the House is expected to vote on next week, would lower interest rates on undergraduate subsidized Stafford loans over the next five years until they are cut in half to 3.4% starting in 2011. In 2004-2005 more than 5.5 million students took out subsidized Stafford loans to pay for college.

“Over the past decade we have asked America’s college students to shoulder a heavy burden of debt to pay for college,” said Dan Pensinger, WISPIRG Higher Education Campaign Coordinator. “Cutting interest rates on student loans will help millions of lower and middle income students and their families by saving them thousands of dollars in student loan payments.”

In 2004-5 76,000 Wisconsin students at 4-year colleges took out subsidized Stafford loans. The average borrower graduated with $13,400 in loan debt.

By lowering interest rates on subsidized Stafford loans, Congress would save Wisconsin college graduates thousands of dollars over the life of their loans:
• The average four-year college student in Wisconsin starting school in 2007 with subsidized Stafford loans would save $2,200 over the life of his or her loans under the proposed legislation.
• When the interest rate cut is fully phased in, the average four-year college student in Wisconsin starting school in 2011 with subsidized Stafford loans will save $4,300 over the life of his or her loans.

7,954 students at University of Wisconsin-Madison and 10,067 students at UWM took out subsidized Stafford loans in 2004-5.
• The average UW student starting school in 2007 with subsidized Stafford loans would save $2,320 over the life of his or her loans under the proposed legislation.
• When the interest rate cut is fully phased in, the average UW student in Wisconsin starting school in 2011 with subsidized Stafford loans will save $4,490 over the life of his or her loans.

About 5.5 million students borrow subsidized Stafford loans every year. Of those borrowers, 3.3 million attend four-year public or private non-profit institutions. According to the Congressional Research Service, 75% of traditional-age subsidized Stafford borrowers come from families with incomes of $67,000 or less. The median income for an American family of four is $65,000.

“Lowering interest rates on loans is a great first step towards providing students and families with a more affordable college education,” said Dan Pensinger. “We applaud Representative Baldwin’s leadership on student issues in the past and we hope she will continue to work to make college more affordable for millions of students.”

The policy proposal analyzed by WISPIRG would cut the fixed interest rate on subsidized Stafford loans for undergraduates from 6.8% to 3.4% over the next five years. Loans originated during the intervening five years will be set at fixed interest rates of 6.12% in 2007-08, 5.44% in 2008-09, 4.76% in 2009-10, 4.08% in 2010-11, and 3.4% from 2011 forward. After graduation, students would be able to consolidate their loans into one loan at the weighted average of the interest rates of their various loans.

All federal Stafford loans receive two forms of government support: the federal government covers the cost of the loans to lenders in case of student default and provides financial subsidies to insure lenders make a profit. Stafford loans are considered “subsidized” when the government pays the interest charges on the loan while the student is in school.

The House of Representatives is scheduled to vote on the plan to cut interest rates during the first 100 legislative hours of the 110th Congress.

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