With Tennessee Gov. Phil Bredesen making another highereducation budget cut this year, making tuition rise once again,this time between 7 percent and 9 percent, University of Memphisstudents may look to take advantage of decreasing student loaninterest rates.
Students who have loans can consolidate them and lock in thoserecord low rates permanently. But a proposal in Congress may lookto make every student loan issued after July 2006 a victim ofvariable rates, making rates after they graduate anything but setin stone.
Interest rates for student loans are at 3.37 percent, theirlowest point in 35 years, according to the Department of Education.The record low interest rates allow students to get funds forcollege and use their payments after graduation to reduce principalrather than pay overwhelmingly high interest rates.
"Students who couldn't get loans now can, especially since theinterest rate is so low," said Jamaal Scott, junior politicalscience major.
The proposal is just a small portion of the ever-changing HigherEducation Act that is undergoing a major overhaul in Congress now.The proposal is intended to use federal subsidies (payments fromborrowers) for programs to make college more accessible tostudents.
Scott doesn't agree with Congress' proposal for variable loanlimits stating a student may not be able to handle the varyinginterest rates if the starting loan limit is so low.
"They might not even want to take a loan out because they didn'tknow the rate would fluctuate," Scott said.
If Congress' proposal is implemented, rates could rise as highas 8.25 percent, the cap for the variable interest rates.
However the American Council on Education wants the cap reducedto 6.8 percent, which could be a difference of thousands ofdollars.
Forty-five percent of college students borrowed money to pay forcollege in 2000, an increase of 15 percent since 1990.
According to the Congressional Research Service, these variableinterest rates could cost students an extra $3,000 over thestandard 10-year repayment plan.
The CRS also found that a variable interest rate could helpborrowers, showing that of the last 18 years, borrowers could havesaved money in 13 of them.
In 2003, subsidies from loans amounted to $3 billion, asignificant increase from 2002 when the amount was $1.3billion.
"Who knows what the interest rate will be in 2006," Scottsaid.
