FACEbook

Friday, May 31, 2013

President Obama's Student Loan Rate Proposal Saves Average Borrower 25¢ Per Day

    Reprising the Don't Double My Rate theme used during the 2012 presidential campaign, the White House is pushing a plan by President Obama this week to prevent interest rates on some student loans from doubling effective July 1.  However, the savings for most borrowers is rather less significant than might appear at first glance.  The White House uses the example of an incoming freshman who will save $4,000 under the president's plan:
If Congress fails to act, college will be further out of reach for millions of students and families.  In fact, an incoming freshman who borrows $27,000 over the next four years -- a typical debt incurred by today’s college graduates – is projected to pay over $4,000 dollars more over the life of their loans without the President’s proposal.
    However, the chart included with the plan shows that the average savings for student loan borrowers is actually $1,126.  Despite tweets from the White House that seem to suggest the savings are annual ("Last year, President Obama helped students save an average of $1,000 on their college loans"), the footnote to the chart explains that the savings assumes the borrower "repays the loans over the expected period of 12 years."  A savings of $1,126 over twelve years is $94 per year, or about 25¢ a day.


Note: This article first appeared at The Weekly Standard.

Note: Here's a post from last year's Don't Double My Rate campaign when the Obama administration used the same playbook, and Congress eventually signed on.

2 comments:

  1. This is simple loan amortization. $20,000 loan at 3.4% interest, paid over 10 years in monthly payments, means you pay a total $3,620 in interest over that period. At 6.8% interest, $7,619 - about $4000 more; or $1.10 a day; $400 per year. That's not pocket change when you're a recent graduate.

    Of course, if your goal is to make it seem like pocket change...that's under 5 cents per hour!

    Now, some nuances: not all loans are subsidized stafford loans to which the plan applies. Over 4 years in college, the current limit is a total $19,000 in subsidized stafford loans. More than 4 years allows an additional $5,500 per year maximum.

    The referenced page suggests, among students eligible for and receiving subsidized stafford loans, they borrow over $4,000 per year - or, extrapolating, $16,000 in eligible loans over a 4 year degree (IF they complete their degree in 4 years).

    Long story short - your calculation is wrong unless, in your world, everyone only takes one year to get their degree. Sloppiness like this makes me really question my fellow conservatives.

    ReplyDelete
    Replies
    1. My calculations amount to simple division. The chart shows the AVERAGE borrower will save $1,126 over the 12 year life of his loan. $1,126 divided by 12 divided by 365 = 25¢. My post is titled "President Obama's Student Loan Rate Proposal Saves AVERAGE Borrower 25¢ Per Day". Some will pay much, some much less.

      Delete