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Wells Fargo announced Thursday that they will be offering lower interest rates on student loans. But their rates are still nearly half a percent higher than federal student loans.
As reported by The Associated Press, Wells Fargo’s basic undergraduate student loan rates dropped from 7.75 percent to 7.24 percent. That decrease is significant, but doesn’t even come close to 6.8 percent federal loan boast.
The new, lower rate is also only available to those with pristine credit scores. For those students (or parents) who have bad credit, the bank’s loans can carry rates of nearly 14 percent.
Aside from rate differences, though, private student loans continue to pale in comparison to federal loans since they lack the benefits the government-backed forms of financing come with. One of those benefits federal loans continue to entice borrowers with private loans miss out on is the forgiveness of all student debt after 25 years—or just 10 years if a student becomes a public service worker.
But Wells Fargo is clearly making efforts to alleviate their pained borrowers. They also announced a reduction of 0.25 percent to 0.51 percent on existing fixed rates for financing used for community college, used by a borrower with a career, held by parents, and for consolidation loans.
Additionally, if borrowers are eligible for a San Francisco bank note, they may be able to receive an additional rate reduction. Wells Fargo loan holders can receive up to a 0.50 percent reduction on new loans through the San Francisco notes, according to The Associated Press.
With the emergence of two recent (but separate) Occupy Student Debt movements, this may be an attempt to begin winning back public affection.
Unless Congress acts very soon, the interest rates assigned to federal student loans are scheduled to double this summer.
Due to a 2007 law that enacted interest rate reductions for undergraduate subsidized Stafford loans, government-backed student financing is currently offered at an interest rate of 3.4 percent. But that law is scheduled to expire this year, which will result in the interest rate doubling, propelling them to a level that hasn’t been seen since 2007: a discouraging 6.8 percent.
In Tuesday’s presidential State of the Union address, President Obama tried to encourage lawmakers to consider and act on this issue. But, as of now, Congress has yet to acknowledge it, and may be apprehensive to extend the rate reduction since passing such a law again would cost the country $5.6 billion a year, according Mark Kantrowitz of FinAid.Org in a CNN Money article.
In fact, in the recent past Congress has already eliminated federally subsidized student loans for graduate students, and cut $8 billion out of the Pell Grant program that helped low-income students fund their education.
“[Since] Congress just passed legislation cutting student financial aid funding, it’s unlikely they’ll pass legislation increasing student aid funding,” said Kantrowitz, according to CNN Money.
Setting aside Congress’s recent voting record pertaining to the student loan industry, another factor that may be pushing their votes away is the fact that President’s Obama’s additional proposals included with this rate-reducing law would total to at least $10 billion a year.
But in the wake of student loan protests, letting the rate hike occur could prove to be detrimental to the country’s morale.
“In this tough economy, people are concerned about the cost of college and the burden of debt to follow,” Lauren Asher, president of the Project on Student Debt, told CNN Money.
Two-thirds of students graduated in 2010 with an average student loan debt of $25,000. If the rate hike occurs, students can expect to pay an additional $5,000 over a 10 year period, said Ascher.
Unless Congress acts soon, students will see the interest rate on federally subsidized Stafford loans increase from 3.4 percent to 6.8 percent. This doubling of student loan interest rates will be the result of legislation setting an interest rate cap expiring come July of this year.
If the interest rate of student loans doubles, those paying for their college career with federal financing will see a massive uptick in their monthly bills. Worry over this surge in price has prompted more than 130,000 letters to be mailed to Congress, pleading the government to stop the interest rate legislation from expiring.
“I will be put back into buying a house and saving up for my expenses later on in life, and life as we know, is very unexpected. Adding that variable [doubled interest rates] definitely limits my ability to be successful,” said Tyler Dowden, an 18-year-old freshman at Northern Arizona University, in a press conference.
According to the Michigan-based news source M-Live, Jennifer Mishory, a director for a non-profit aimed at representing people between the ages of 18 and 34, says the possibility of a rate hike is a huge problem. She claims that many students are already struggling to pay back their student loans, and this rate hike will only hinder their efforts further.
But despite student’s cries, house representatives are not facing an easy decision.
Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, told The Associated Press the interest rate increase is the “result of a ticking time bomb set by Democrats five years ago.” Referencing legislation passed in 2007 that artificially lowered rates for federal student loans to 3.4 percent, he warns that somebody is going to have to pay the bill.
“We must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill,” explained Jennifer Allen, a spokeswoman for Kline, in an email to The AP.
The cost for keeping rates so low is right around $6 billion every year.
Whoever receives the brunt of this interest rate bill is not going to be happy. If the rate reduction continues, the general public, many of whom are suffering from a slumped economy, would be forced to shoulder yet another financial blow. If it subsides, the nation’s students will suffer through more expensive student loan bills.
There’s a harsh debate occurring on Capitol Hill right now, and one that will undoubtedly heat up even further tomorrow when the House votes on a bill that will keep student loan interest rates from doubling.
Federal student loans have had their interest rates artificially capped at 3.4 percent by legislation passed in 2007. But the legislation is set to expire on July 1, 2012, which has students, graduates, and parents paying close attention to what our lawmakers will do. If the legislation expires, the federal student loan interest rates will double, landing at their original 6.8 percent that they would be at without a cap.
In order to stop federal student loan interest rates from doubling, Congress will need to come up with $5.9 billion in order to pay for the artificially lowered rates.
Friday’s bill, proposed by House Republicans, is designed to acquire that money by slashing money from President Barack Obama’s health care program.
The area of the health care program being targeted by the Republican’s bill is the prevention and public health fund, which is a $17 billion section of the health care system that finances immunizations, screenings, research, and wellness education.
Naturally, House Democrats were quick to vocalize their opposition.
Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, pointed out that it was the Republicans who originally pushed the current federal budget through the House, knowing full and well that the budget would allow the student loan rates to double.
“The GOP has suddenly changed their tune now that it has become politically unpopular,” Van Hollen said, according to Businessweek.
President Obama has been making campaign appearances at college campuses, where the issue of student loan interest rates has inevitably surfaced.
“Some [Republicans] suggest that students like you have to pay more so we can help bring down the deficit,” said Obama this week at the University of Iowa. “Now, think about that. These are the same folks who ran up the deficits for the last decade. They voted to keep giving billions of dollars in taxpayer subsidies to big oil companies who are raking in record profits. They voted to let millionaires and billionaires keep paying lower tax rates than middle-class workers.”
Republican House Speaker John Boehner answered the President’s recent remarks by saying the President has been, “trying to invent a fight where there wasn’t and never has been one,” according to Businessweek.
“We can and will fix the problem without a bunch of campaign-style theatrics,” Boehner added.
House Democrats hope to push their own bill through Congress that would keep student loan interest rates from doubling by raising Social Security and Medicare taxes on upper-income owners of some private corporations, which includes the private practices of lawyers and doctors, according to Businessweek.
After participating in a series of fund-raisers in California, President Obama made a stop in Nevada where he chose to speak at the University of Nevada.
At the college, he spoke in front of 2,500 students, who were roused into a chant of, “four more years,” after hearing the president’s words.
The topic that encouraged such support from the audience was that of student loans.
“Making college affordable,” started President Obama. “That’s one of the best things we can do for the economy.”
The president’s speech comes less than one month before federal student loan interest rates are scheduled to increase.
On July 1, unless Congress votes to extend an expiring piece of legislation, the current federal student loan rate of 3.4 percent will double to 6.8 percent.
Extending the student loan legislation would cost the government around $6 billion for each year that interest rates are artificially capped. Both parties in the House have proposed bills to extend the legislation, but neither of the proposals have passed since both parties have differing opinions on where the funding for the legislation should come from.
Democrats want the student loan cost to be funded by forcing wealthy taxpayers to pay Social Security and Medicare taxes on their payrolls, while Republicans propose funding come from the elimination of some preventative health services in President Obama’s health insurance law.
“And what has the White House done? Nothing. The president has yet to respond,” said Senate Republican leader Mitch McConnell in a speech. “One can only surmise that he’s delaying a solution so that he can fit in a few more campaign rallies with college students while pretending someone other than himself is delaying the action.”
Republicans claim they have yet to hear a response from the President, so they have sent him a letter pitching their health cut proposal and other funding alternatives.
When asked about the delay, White House press secretary, Jay Carney, said aboard Air Force One, “We are working with Congress to get this done, and we think it will get done,” according to the NY Times.
Sallie Mae, one of the nation’s largest private student loan lenders, has announced that it will be offering lower interest rates for graduate borrowers.
Effective April 1, 2013, borrowers of the Smart Option Student Loan will be able to obtain variable- or fixed-rate financing featuring these new low interest rates.
The new variable interest rates will range from 2.25 to 7.5 percent and are tied to the Libor index. Fixed-rate financing will be set between 5.75 and 8.875 percent.
A Sallie Mae news release explained that these new low rates compare favorably when held against the government’s Direct PLUS Loan interest rates.
Patricia Christel, Vice President of Corporate Communications at Sallie Mae, told loans.org that Sallie Mae chose the month of April for several reasons that benefit borrowers.
“April is the beginning of the financial aid award letter season for the coming academic year, and the time when many students start to make decisions on how to pay for college,” she said.
Libor, the infamously manipulated interest rate index that made headlines last year, was also chosen for a specific reason.
“Libor is a commonly used index for variable rate loans,” explained Christel.
Despite these new low interest rates, borrowers are advised to use caution before borrowing student loans from Sallie Mae. There are other avenues of college financing, including the government’s federal student loan program.
“Which loan program is ‘better’ is an individual decision dependent on the student’s circumstances and preferences,” said Dewey Knight, Associate Director of Financial Aid at the University of Mississippi, in the news release. “We highly recommend that our students research both loan programs and choose the option that best meets their individual needs.”
Even Sallie Mae echoed Knight’s wise and cautious advice.
“We encourage graduate students to carefully weigh all available financing options, rates, fees, and total costs along with their career plans in mind,” said Christel.
Given the planned date of this development, Nikki Lavoie, Communications Manager for Sallie Mae, ensured loans.org that the lowering of interest rates on April 1 is not an April Fools’ joke.
Home loan interest rates jumped this week to a high for 2013, according to Freddie Mac’s weekly survey.
For the week ending March 14, 2013, the 30-year fixed-rate mortgage (FRM) averaged 3.63 percent with an average 0.8 point, up from last week when it averaged 3.52 percent. A year ago, the 30-year FRM averaged 3.92 percent.
This week’s reading for the 30-year FRM was its highest since Aug. 23, 2012. It has increased, albeit on a fluctuating path, since reaching its record low of 3.31 percent on Nov. 21, 2012.
This week’s 15-year fixed-rate mortgage averaged 2.79 percent with a 0.8 point. The rate is up from last week’s average of 2.76 percent. Last year at this time, the 15-year fixed home loan interest rate averaged 3.16 percent.
“Fixed mortgage rates rose this week on stronger signs of jobs growth and consumer spending,” said Frank Nothaft, Freddie Mac vice president and chief economist.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.61 percent with a 0.6 point this week, down from last week when it averaged 2.63 percent. A year ago, the 5-year ARM averaged 2.83 percent.
The 1-year Treasury-indexed ARM averaged 2.64 percent with a 0.4 point. The rate is up from last week’s average of 2.63 percent. At this time last year, the rate averaged 2.79 percent.
According to the Bureau of Labor Statistics (BLS), the month of February experienced an addition of 236,000 new workers. This large economic addition helped to reduce the unemployment rate to 7.7 percent. The employment increase helped to offset the expiration of the payroll tax holiday.
In addition, retail sales increased 1.1 percent, significantly above the market consensus forecast.
In a proposed budget plan, interest rates for federal student loans will be linked to the government’s cost of borrowing.
In President Obama’s new budget request, which spans a lengthy 244 pages, several large changes to the federal student loan program were announced.
Other plans for the year’s budget include additional funding for community colleges, more federal work-study programs and increasing the maximum amount that Pell Grants deliver.
But one of the most discussed items dealing with higher education is the change to the student loan interest rate. Instead of the current system, where student loan interest rates are fixed by law and subject to congressional changes, the President’s new budget proposes changing the interest rates to market-based fluctuations.
The plan is a way to reduce the growing student loan debt problem in the country, and to reduce the overall cost of higher education. Student loan debt passed the $1 trillion in late 2011 or early 2012, and the number is not set to decrease unless large scale plans are enacted.
If the interest rate change became law, it would reduce the current cost of students’ payments. But interest rates change constantly. Since the market is on an upswing, the rates will likely rise past the current fixed rate. Unless a cap is set, student borrowers could wind up owing even more than they do now in future years.
But Obama’s plan is just that — a plan. It is not a law yet.
And critics dispute whether or not the plan has any chance of passing. Some experts believe the plan stands little chance of becoming a law, whereas others believe it will pass in the next few months.
Interest rates on unsubsidized Stafford loans are set to double to 6.8 percent on July 1, 2013 unless Congress enacts another freeze on the rates. If Congress does not pass another freeze, borrowers are predicted to owe a significant amount more.
According to a U.S. Public Interest Research Group report released Tuesday, the millions of students who owe debts on these loans will be forced to pay $1,000 or more per year.
At the very least, even if the interest rate aspect does not pass, it could still open up dialogue about the student loan debt issue. It could begin congressional debates about unique ways to reform the student loan program and how to reduce the national student debt figure.
Congress failed to agree on a deal to keep subsidized Stafford federal student loan interest rates from doubling on July 1. As a result, interest rates have risen from 3.4 percent to 6.8 percent.
Stafford federal student loans are fixed-interest college financing that is only available to students who have filled out and submitted a Free Application for Federal Student Aid (FAFSA). There is only a limited amount of money available for Stafford college loans each year, hence the need for students to quickly fill out and submit FAFSAs once a year.
Republicans supported a plan under in which interest rates would be tied to financial markets. The plan would have allegedly saved the government $3.7 billion over 10 years. Opposing Democrats allege that such a plan would only lead to student loan borrowers paying higher rates.
Democrats supported a bill that would have extended the 3.4 percent rate for an additional two years. Interestingly, the White House agreed with the Republican Party and supported locking in interest rates at the beginning of each year while tying interest rates to 10-year Treasury Bonds.
Regardless, Congress was on recess as the July 1, 2013 deadline passed, and neither plan was voted on agreed upon, resulting in the doubling of Stafford student loan interest rates.
Many financial industry observers see the government’s inaction as a direct blow to prospective student loan borrowers.
Dr. Michael Clifford, CEO and founder of DreamDegree.org, told loans.org that the government is acting like a monopolistic “predatory lender” that has all but pushed banks out of the student loan business. Clifford highlighted how restrictive student loans could be on top of the now doubled interest rates.
“There are no options other than to borrow from the government and they can’t be discharged out of bankruptcy,” he said. “The student loan business made a 15 percent return on investment. And it’s a very profitable business on the part of the government. It’s a very profitable form of taxation. It’s been sold to the public that it would cost less money for tax payers and is an efficient system when in fact it is very inefficient and it costs a lot more money.”
Clifford explained that even though student loan lenders get more money under the new higher interest rates, the money isn’t going to education. In Clifford’s eyes, the government runs student loan lending like a profitable business and doesn’t help academic institutions lower their costs. He suggested that student loan borrowers who graduate be offered a discount or rebate on their balance as both an incentive to finish their education and to help relieve student loan debt burdens.
One student loan borrower, Dr. Jane Foody, has a quarter of a million dollars of debt accrued from her doctorate of physical therapy studies. She said that while tuition keeps increasing each year, salaries for Physical Therapists and many professions have increased very little in the past 10 to 15 years.
She told loans.org that she borrowed one private student loan when she was 19 for $20,000 with an 11 percent interest rate. Not a single bank has agreed to consolidate or refinance her debt.
Dr. Foody feels that young adults shouldn’t be saddled with high interest rates.
“In today’s America and economy, many of us young adults are left working 50-60 hour work weeks with very little to show for it,” she said. “This is after we spent a decade studying and giving up fun and parties to do what we thought was the right thing for the promise of an American dream that is no longer there for the taking. A lie has been sold to many of us across this country being told we need to go to college and how college is very important.”
Dr. Foody attended an out-of-state school yet qualified for in-state tuition by working full-time and becoming a resident during her second year. However, she still needed to borrow student loans despite attending one of the most affordable physical therapy programs in the country, which cost her $70,000. On top of her already considerable debt, she then went to New York Medical College’s physical therapy graduate program which cost an additional $125,000.
People primarily go to college in order to make more money, claims Dr. Foody, however she questioned what the point of making more money was if student loan borrowers are destined to repay debts for the rest of their lives. She feels that many borrowers will never be able to pay off their loans before they retire, claiming that many of the brightest and most educated people in the country can barely pay their electric bills, much less put food on the table.
Debt stories like Dr. Foody’s personal account can instill fear and uncertainty into the hearts and minds of many upcoming college students and current college loan borrowers. But not everyone agrees that this is a time of such distress. Rather, prospective student loan borrowers may just have to be more careful with their expectations.
Hitha Prabhakar, personal finance advocate at Mint.com, told loans.org that even though the media is filled with startup news about some young entrepreneur making billions without a college degree, borrowers should be more realistic in their expectations of the probability that they can become wealthy without an education. She also cautioned that forgoing a college degree because of costs can prove even more costly later in life.
“But that’s the thing — these are one-in-a-million type stories. Having a college education is invaluable, and with spending increasing geographically too … it would be in the best interest of American students to keep the price of student loans down,” she said. “Knowledge is power and power can equal higher pay, better opportunities and an edge in the global economy.”
Even though Congress may retroactively cooperate on lowering student loan interest rates, Financial Attorney Leslie Tayne of the Law Offices of Leslie H. Tayne P.C. predicts students will become more adaptive to their overall situation, with or without legislative interest rate help.
“This increase in interest may encourage more students to find other ways to fund their college education and be wiser about their choice in college.,” she said.
Congress is currently in recess for the July 4 national holiday, but will be returning in the second week of the month. While lawmakers voted to extend the 3.4 interest rate cap last year, if Congress retroactively does so again this year, then the same situation may repeat itself in July, 2014.
Fixed rates grew significantly this week while adjustable rates remained calmed, according to rate reports provided by loans.org.
For the week ending on Aug. 22, 2013, the 30-year fixed-rate mortgage averaged 4.55 percent, a 21 basis point increase from last week’s rate of 4.34 percent.
The 15-year FRM averaged 3.51 percent, another significant increase from 3.33 percent set last week.
Although large basis point increases were seen in the fixed spectrum, smaller changes occurred for the adjustable rates this week. The 5/1 adjustable-rate mortgage meagerly increased from 3.19 percent to 3.23 percent this week.
In addition to the steadily rising mortgage interest rates, the housing market is strengthening in overall sales and costs.
Last month, existing home sales rose 6.5 percent, reaching an annual rate of 5.39 million units, according to the National Association of Realtors (NAR).
Lawrence Yun, NAR chief economist, said that due to mortgage interest rates reaching the highest levels in two years, some buyers are being pushed to the sidelines.
The increase in home sales signifies that the jumps were manageable and are a positive reflection of the stabilizing economy, according to Donald Frommeyer, president of the National Association of Mortgage Brokers (NAMB).
Beyond the added cost resulting from rising mortgage interest rates, the average cost of a home has increased significantly. The national median price for existing homes of all various types was $213,500, a 13.7 percent increase since last year.
Despite the overall increase in cost of being a homeowner, one expert does not think the recent interest rate changes will have a significant impact on the market.
Phil Georgiades, chief loan steward for Va Home Loan Centers, said the increases will not impact the average customer.
“For the average home buyer, the increase in rates will increase their payment by less than $100,” he said. “If the interest rates double, then we can probably expect to see a substantial drop in prices as many buyers will exceed their threshold for affordability.”