The White House

Office of the Press Secretary


FACT SHEET: President Obama Fights to Keep Interest Rates from Doubling

“Helping more of our young people afford college should be at the forefront of American’s agenda.  It shouldn’t be a Democratic or a Republican issue.”

--President Barack Obama, University of Colorado-Boulder, April 24, 2012.

Last year the President worked with Republicans and Democrats in Congress to secure a one-year extension to keep the student loan interest rate from doubling to 6.8 percent.  Absent Congressional action, interest rates on new subsidized student loans will double once again on July 1 of this year.  To keep rates from doubling, the President’s FY 2014 Budget proposed that Congress enact a long-term solution that cuts rates this year on nearly all new loans, ensures that all students have access to affordable repayment options, and does not charge students higher interest rate to pay for deficit reduction.   

The comprehensive solution put forward by the President allows borrowers to benefit from the low interest rates currently available in the marketplace, and guarantees these rates over the life of their loans.  In the future, fixed rates would be determined each year, and the plan would ensure that borrower’s rates are in line with the government’s own cost of borrowing.  Additionally, the President’s plan guarantees that student loans remain affordable by allowing all students – past, present, and future – to cap their payments at 10 percent of income. 

If Congress fails to act, college will be further out of reach for millions of students and families.  In fact, an incoming freshman who borrows $27,000 over the next four years -- a typical debt incurred by today’s college graduates – is projected to pay over $4,000 dollars more over the life of their loans without the President’s proposal.  As the economy continues to recover, and at a time when market interest rates are at historic lows, more than 7 million students who will rely on these loans to finance postsecondary education should not be burdened with additional college debt when they graduate and launch a career or a business, start a family, or buy a house. 

Since the President released his budget, several proposals have been put forward in the House and Senate that address the interest rate issue in both the near-term and long-term.  What is most important is that Congress agrees upon a solution that prevents rates from doubling on July 1, and a number of proposals meet that test.  The Administration has continued to focus on working with Republican and Democrats in Congress on a fix that meets that test and does not charge students higher rates to fund deficit reduction. 

While the Administration welcomed action by the House on interest rates, it unfortunately moves us in the wrong direction.  Under the recently passed House legislation, H.R. 1911, many borrowers could end up paying even more than if Congress does nothing at all.  The same college freshman who could save over $4,000 dollars under the President’s plan would pay over $200 more under the House Republican plan.  The House bill also uses higher student rates to reduce the deficit by $4 billion, raises rates the most on low-income students, creates greater uncertainty for borrowers about the total cost of their loans, and fails to include additional help for students struggling to repay their loans.  

Students and their families need certainty about college costs, not fluctuating rates, as they make critical decisions about borrowing for college.  In addition to the Administration’s work on student loan interest rates, we have worked hard to provide greater transparency about college costs through efforts like the College Scorecard, so students and families can have better information and more certainty as they plan for college.

 

Change in Interest Paid on Subsidized Stafford Loans
For a Typical Student Borrowing the Average Amount, by State

State

2013-14 Total Subsidized Stafford Loan Amount

Borrower Count

Average Borrowed

Average Savings Under the President’s PlanM

Alaska

$42,696,982

11,624

$3,673

$1,030

Alabama

$466,706,263

125,094

$3,731

$1,046

Arkansas

$246,644,654

68,243

$3,614

$1,013

Arizona

$1,650,867,640

450,977

$3,661

$1,026

California

$2,206,897,300

550,928

$4,006

$1,123

Colorado

$572,439,923

154,128

$3,714

$1,041

Connecticut

$277,885,356

73,051

$3,804

$1,066

District of Columbia

$198,987,697

50,415

$3,947

$1,106

Delaware

$67,549,662

18,452

$3,661

$1,026

Foreign Campus

$17,220,006

4,009

$4,295

$1,204

Florida

$1,756,446,930

462,048

$3,801

$1,065

Georgia

$817,315,434

228,887

$3,571

$1,001

Guam

$5,154,086

1,328

$3,882

$1,088

Hawaii

$64,351,058

17,325

$3,714

$1,041

Iowa

$817,513,738

222,553

$3,673

$1,030

Idaho

$176,757,135

46,593

$3,794

$1,063

Illinois

$1,362,168,291

337,440

$4,037

$1,132

Indiana

$1,025,417,698

271,089

$3,783

$1,060

Kansas

$283,086,712

78,074

$3,626

$1,016

Kentucky

$440,183,775

123,382

$3,568

$1,000

Louisiana

$304,064,050

84,860

$3,583

$1,004

Massachusetts

$627,935,759

158,718

$3,956

$1,109

Maryland

$387,512,749

105,027

$3,690

$1,034

Maine

$125,208,491

33,883

$3,695

$1,036

Michigan

$1,058,623,425

284,937

$3,715

$1,041

Minnesota

$718,944,505

194,211

$3,702

$1,038

Missouri

$585,481,902

157,023

$3,729

$1,045

Mississippi

$237,496,084

66,392

$3,577

$1,003

Montana

$88,120,071

24,017

$3,669

$1,028

North Carolina

$666,048,885

176,362

$3,777

$1,059

North Dakota

$73,249,983

20,041

$3,655

$1,024

Nebraska

$169,580,270

47,290

$3,586

$1,005

New Hampshire

$145,808,024

38,923

$3,746

$1,050

New Jersey

$546,133,386

144,926

$3,768

$1,056

New Mexico

$142,216,470

40,703

$3,494

$979

Nevada

$101,994,342

27,155

$3,756

$1,053

New York

$1,556,774,109

409,287

$3,804

$1,066

Ohio

$1,307,496,119

361,857

$3,613

$1,013

Oklahoma

$303,979,477

84,373

$3,603

$1,010

Oregon

$446,861,681

121,570

$3,676

$1,030

Pennsylvania

$1,452,626,575

374,328

$3,881

$1,088

Puerto Rico

$152,952,989

47,894

$3,194

$895

Rhode Island

$158,562,059

42,154

$3,761

$1,054

South Carolina

$404,736,755

111,601

$3,627

$1,017

South Dakota

$124,536,806

34,748

$3,584

$1,005

Tennessee

$497,162,080

131,788

$3,772

$1,057

Texas

$1,687,827,256

464,119

$3,637

$1,019

Utah

$363,278,323

96,768

$3,754

$1,052

Virginia

$688,860,396

179,038

$3,848

$1,079

Virgin Islands

$2,713,847

735

$3,694

$1,035

Vermont

$71,101,710

18,156

$3,916

$1,098

Washington

$391,091,512

104,863

$3,730

$1,045

Wisconsin

$591,341,448

159,147

$3,716

$1,042

West Virginia

$224,318,539

67,088

$3,344

$937

Wyoming

$29,106,360

8,258

$3,525

$988

Total (Unduplicated Count)

$28,930,036,778

7,200,000

$4,018

$1,126

Source: U.S. Department of Education analysis.  Assumes a student who borrows the state average amount of subsidized loans in the 2013-14 academic year and repays the loans over the expected period of 12 years.

The President’s Plan to Keep Student Loans Affordable

Lower Interest Rates Now: Under the President’s plan, nearly 11 million borrowers will see their interest rates decrease on new loans after July 1, 2013, compared to current law. Over 7 million Subsidized Stafford loan borrowers will see their rates on new loans drop below the current reduced rate of 3.4 percent to a projected 2.9 percent.  Over 8.5 million Unsubsidized Stafford borrowers will see their rates drop on new loans from 6.8 percent to 4.9 percent.  And over 1 million GradPLUS and Parent PLUS borrowers will see their rates on new loans drop from 7.9 percent to 5.9 percent—the first reduction in such rates since rates increased in 2006. 

More Affordable Repayment Options: Additionally, the President is proposing extending his Pay As You Earn (PAYE) loan repayment plan to all student borrowers to provide an insurance policy against unmanageable federal student loan debt. Previously, the plan was available only to new borrowers.  Under the President’s expanded PAYE plan, all student borrowers are assured that their federal student loan payments will never exceed 10 percent of their discretionary income. 

A Fiscally Responsible Solution:  The President’s plan is cost-neutral and will keep the federal student loan programs on secure footing for the future.  It also ensures we have the necessary resources available to keep investing in other critical higher education programs such as the Pell grant program and the Perkins loan program, as well as to make targeted investments in postsecondary education that facilitate college completion, assure continued state support, pave the way for high-quality, cost-effective educational opportunities.  These efforts combined will keep college affordable for students and families.