Stafford Loan Interest Rate Reduction: Background and Issues Page: 4 of 6
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H.R. 5 would reduce interest rates only for undergraduate borrowers of subsidized
Stafford Loans. The interest rate on unsubsidized Stafford Loans and on subsidized
Stafford Loans borrowed by graduate students would remain at 6.8%. As shown in Table
1, for loans disbursed on or after October 1, 1992, interest rates during repayment on
Stafford Loans have been at or lower than 3.4% only during the period from July 1, 2004,
to June 30, 2005, and only for loans that had been disbursed on or after July 1, 1998. For
most of the history of the Stafford Loan program, interest rates on variable rate loans have
been at or above 6.79% during repayment.s (For purposes of comparison, under the
Federal Perkins Loan program - the other major subsidized student loan program - all
loans disbursed on or after October 1, 1981, carry a fixed interest rate of 5.0%.) The
proposed interest rate reduction would result in increased costs to the government under
the FFEL program due to larger SAP payments to lenders; and under the DL program due
to receipt of reduced revenue from interest payments.6
Loan Volume and Characteristics of Borrowers
Loan Volume. Borrowing under the subsidized and unsubsidized Stafford Loan
programs constitutes the largest single source of direct federal student aid to help students
finance their postsecondary education expenses. In academic year FY2006, more than
$36 billion in subsidized and unsubsidized Stafford Loan aid was made available to
undergraduate students under the FFEL and DL loan programs. The number of
undergraduate borrowers and committed loan volume for FY2006 is presented in Table
2 for both programs.
Table 2. FFEL and DL Undergraduate Borrowers
and Committed Loan Volume: FY2006
Loan Type FFEL FFEL Loan DL DL Loan Total Loan
Borrowers Volume Borrowers Volume Volume
Subsidized 4,394,000 $15,537,000,000 1,148,000 $4,113,000,000 $19,650,000,000
Unsubsidized 3,345,000 $13,505,000,000 778,000 $2,949,000,000 $16,454,000,000
Source: U.S. Dept. of Education, Office of Postsecondary Education, National Student Loan Data System.
Income Distribution of Borrowers. Data on the distribution of undergraduate
Stafford Loan borrowers in AY2003-2004, by 2002 income percentiles are presented in
Table 3. The table shows total 2002 income for the parents of dependent students and
for independent students and their spouses at selected percentile point breaks. For
instance, column B shows incomes for various categories of students at the 25th percentile
(i.e., 25% of students have lower incomes); and column C shows median incomes.
5 However, interest rates have also been lower on federal student loans. For example, Guaranteed
Student Loans (GSLs) were originally made at a fixed interest rate of 6%; and borrowers whose
income was below a certain threshold at the time of disbursement were eligible to have 3
percentage points of their interest paid by the federal government (P.L. 89-329, 428(a)(2)).
6 An examination of the cost to the government of this proposal, and issues such as its effect on
student access to and persistence in postsecondary education are beyond the scope of this report.
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Stafford Loan Interest Rate Reduction: Background and Issues, report, January 30, 2007; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc808160/m1/4/: accessed December 19, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.