Over the past 12 years, the amount of debt carried by the average undergrad has doubled. In 2005, the average median student debt upon graduation ranged from $11,750 to $27,757, depending on the school and state. A student graduating in 2018 is face with over $37,000 in loans, nearly twice the amount of a student in 2005. In addition, the average student loan payment has increased from $227 to $393. The following Acts have directly affected student loan lending rates and the amounts being borrowed:
February 8, 2006 – HERA: The Higher Education Reconciliation Act of 2005
President George Bush signed the Higher Education Reconciliation Act into law on February 8, 2006. The bill cut $12.6 billion from student financial aid. It also allowed for an increased interest rate on student loans, for up to 6.8 percent and up to 8.5 percent on PLUS loans. Additionally, the act eliminated the in-school interest rate benefit, so students are no longer able to lock in a lower rate while attending college. The act also increased the amount of money for which some students could qualify. The Act also opened up the ability for graduate and professional students to obtain financing via PLUS loans. However, students were required to begin paying back the loan within 60 days or accrue interest while they deferred payments. The bill also repealed the ability for married students to consolidate their loans together.
September 2007 – College Cost Reduction, Access Act
The Income-based repayment plan is introduced. This repayment plan protects loan recipients from excessive monthly payments. The IBR does not apply to federal student loans. Additional shelters, protecting certain types of income from repayment calculation, makes student loans more attractive. The act also introduces a loan forgiveness program for public servants who make IBR payments for at least ten years. While this act did not increase interest rates, it did make student loans more attractive for borrowers.
May 7, 2008 – Ensuring Continued Access to Student Loan Act
This temporary program provided federal funding to private lenders who offered student loans by allowing the U.S. Department of Education to buy guaranteed loans. This act was primarily the result of several market disruptions which made it more difficult for private lenders to offer student loans. In fact, many lenders stopped participating in the FFEL (Federal Family Education Loan) program. Schools then had to switch to a direct loan program.
March 23, 2010 – Health Care and Education Reconciliation Act of 2010
There was plenty of hoopla over the health care reform portion of this bill, but not quite as much about the education section, even though this reform introduced some massive changes that likely contributed to higher student loan debt. Some of the most significant changes included making it easier for parents to take out federal loans for their children and reducing the amount of time for a loan to be eligible for forgiveness from 25 years to 20 (on loans taken out after 2014). Public servants could still qualify for loan forgiveness after ten years if they qualify.
July 1, 2010 – FFEL Program is no more
Congress passed a law to eliminate the FFEL program. Any loan made after July 1, 2010, would fall under the direct loan program. Congress estimated that this elimination would save the government $68.7 billion over ten years. FFEL loans offered discounts like fee waivers, graduation fee rebates, and discounts for auto pay. With the elimination of the FFEL program, most of those discounts disappeared as well.
August 2, 2011 – Budget Control Act of 2011
The Budget Control Act of 2011 eliminated a subsidy that allowed graduate students to attend school without accruing interest on their student loans. The act also removed all direct loan repayment incentives. Common repayment incentives included a .25 percent interest rate deduction on auto-pay loans. On a $25,000 loan, the difference in total paid was about $3 per month (or $360 over ten years). The Act did provide an additional $17 billion in Pell Grant funds.
2015 – Revised pay as you Earn
The pay as you earn program gets an overhaul and is dubbed REPAYE or Revised Pay as you Earn. The initial program allowed for up for loan payments to equal up to 15 percent of your income. The updated version lowered that to 10 percent. This program is available to ALL loan holders (the original repay plan only applied to loans taken out after 2007). This new plan also dictates that student loan debt can be forgiven after 25 years if you have grad school debt as well. Undergraduate debt can still be forgiven in 20 years if you qualify for the traditional pay as you earn program. With these attractive incentives, student loans are even more appealing to college students.
July 2015 – Interest rates drop
Interest rates on student loans dropped by about half a percent between July 2014 and July 2015. Lower interest rates mean lower monthly payments. The drop even further the following school year, but the decrease does little to offset tuition and fee increases.
September 2016-2017 – Tuition and fees rising higher than financial aid
College tuition and fees grow slowly, but available financial assistance does not follow suit. While tuition and fees only jumped 2 percent in 2016 and 2017, grant aid and tax benefits did not increase with the added expense. The slimming tax benefits and reduced grant availability resulted in net prices rising steadily for seven straight years. Students who do opt to continue to college, despite financial concerns, are more likely forced to take out student loans.
March 2017 – Unemployment rate drops, student loan rates go up
February 2017 saw the unemployment rate drop to 4.7. While the decline was not particularly impressive (it was 4.8 the previous month), hourly rates rose about 6 cents per hour. While this was good news for the economy, it also increased interest rates across the board. Student loan rates bumped up too. In 2016-2017 the rates sat at 3.76 % for fixed at 5.31% for unsubsidized graduate loans. By the time the 2017-2018 terms rolled around rates were at 4.45% for subsidized and 6% for unsubsidized graduate loans. Student loan rates adjust every July.
2018 and Beyond – Prosper Act
At the time of publication, The House of Representatives is in the process of reviewing the Prosper Act. If approved the act could streamline federal loans and grants into one tool. The program would make it easier for students to apply for grants and loans and eliminate the Stafford and loans. Additionally, the Act would remove subsidized loans entirely. This means that all federal student loans would begin accruing interest right away instead of after the student graduates. This Act could eliminate most of the repayment options leaving only two: a traditional 10-year repayment plan and an income-based repayment program. There would be a cap on accrued interest for income-based plans maxing out at the interest accrued under the standard repayment plan. One of the most significant changes is that the Public Service Loan Forgiveness program would likely be eliminated. At the time of publication, the bill is still under review by the House of Representatives.
Although many of these programs are intended to reduce student debt, the question remains: Are they really making student debt more manageable? While some programs promise debt relief, meeting the qualifications for the various programs is difficult and oftentimes impossible. Many feel that the only viable solution is debt forgiveness, but what will the repercussion be on the economy?