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Students Would Save Over $9,000 Under Elizabeth Warren’s New Bill

May 9, 2013
Loans, Student Loans
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How much should students be paying for their Federal student loans?  This has been under hot debate as the legislation keeping the Federal Stafford student loans interest rate at 3.4% sets to expire July 1st, doubling rates to 6.8%.  President Obama has addressed this issue in his 2014 Budget, proposing that student loan rates be tied to the ten-year Treasury Bill.  NerdScholar crunched the numbers and found students would save up to $2,300 under Obama’s proposed student loan reform.

However, Senator Elizabeth Warren (D-Mass), has stepped up the plate with her first bill proposing the revolutionary idea that students should be charged the same interest rate as big banks.  Currently the Primary Discount Rate from the Federal Reserve (the rate big banks get charged for loans from the government) is .75%.  Below are calculations comparing the interest students would pay under the various situations, assuming a standard 10-year repayment schedule.

How does the total interest for the average 4-year student debt of $26,600 vary under the different situations?

Current Situation Legislation Expires July 1st and No Action Taken President Obama’s 2014 Budget Student Loan Proposal Using Today’s Treasury Rates Senator Warren’s Proposed Bill Using Current Discount Rates
  Interest Rate Total Interest Paid Interest Rate Total Interest Paid Interest Rate Total Interest Paid Interest Rate Total Interest Paid
Subsidized Stafford Loan 3.40% $2,321 6.80% $4,885 2.65% $1,788 0.75% $491
Unsubsidized Stafford Loan 6.80% $5,248 6.80% $5,248 4.65% $3,476 0.75% $527
Total 5.16% $7,570 6.80% $10,134 3.69% $5,265 0.75% $1,018

The student loan rates are set to jump back to 6.8% on July 1st should no action be taken.  Compared to the interest students are set to pay under this change, students would pay $9,000 less in interest under Senator Warren’s bill.