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President Obama Signs Student Loan Deal Into Law

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A few days ago, President Obama signed into law the Senate’s student loan interest rate deal.

Prior to the President signing the deal into law, interest rates on federal student loans were at 6.8 percent after they doubled on July 1, 2013.

Under the terms of the deal, federal student loan interest rates for undergraduates will be set at 3.9 percent. Graduates will see 5.4 percent interest on their student loans, while parent borrowers will receive 6.4 percent interest on any federal student loans they borrow on behalf of their children.

These rates are locked in for this year, but can rise in subsequent years since they are tied to Treasury notes.

Even though federal student loan interest rates are now adjustable, the deal caps them at 8.25 percent for undergraduates, 9.5 percent for graduate students, and 10.5 percent for parents.

As both Republican and Democrat dealmakers pat each other on the back in the wake of the President’s signing, experts think that the devil is in the details.

Michael Lux, attorney and writer of the Student Loan Sherpa, can’t predict what highs or lows Treasury notes will reach, but he knows that the caps on the student loan interest rates are much higher than what they would have been without this legislation.

As far as Lux is concerned, the deal is still great in the short term for current college students, but bad news for future students in a strong economy.

“For future students I sincerely hope that the White House plans on revisiting this issue before rates jump,” said Lux. “Student loans shouldn't be a profit center for the federal government.”

Lux was quick to point out that this deal still doesn’t address the trillion dollars of existing student loan debt, a fact he knows all too well since he has over six figures worth of student loan debt himself.

Another expert believes that changing the interest rate on federal student loans doesn’t address more wider problems facing student loan borrowers.

Alfred Poor, author of 7 Success Secrets That Every College Student Needs to Know!, thinks that while the President and the deal’s supporters have good intentions, the Student Debt crisis is more the result of a lack of financial knowledge and responsibility.

He explained that the average student loan debt amount is $27,000 while the average starting salary for college graduates is almost $45,000, a difference of nearly $19,000.

“If college graduates were to live as if they did not yet have the college degree that they have not yet paid for, they could have their entire tuition debt paid off in just a few years,” said Poor. “I believe that much of the ‘crisis’ in this situation is a lack of financial knowledge and responsibility on the part of recent grads. Too many try to live a lifestyle that matches (or exceeds) their salary, attempting to maintain the quality of life that they were used to when living with their parents' support.”

Poor stresses that if recent graduates exercise financial restraint in their lifestyles, then they could mitigate the impact that rising interest rates will have on their overall student loan debt.

“Three percent of $27,000 is $810, or less than the cost of one pizza a week,” he said. “The bottom line is that the current student loan deal should have no impact. Increases in other items, such as gas prices and health insurance premiums, are more likely to have a bigger impact on young graduates’ budgets once they start working after graduation.”

Poor attributes any anger at the President’s decision to sign the deal to the American public’s reliance on media sound bites rather than facts.

He also doesn’t believe that this signing will prompt a rush to private student loans since they are often times more costly than federal student loans.