From the Wall Street Journal...
The Obama administration plans to make the government the sole provider of federal student loans, ending the participation of private lenders in the program.
Under a plan unveiled in the administration's budget, subsidies to private lenders would be eliminated, and the government would use the savings estimated at $47.5 billion over the next decade to help bolster the Pell grant program for low-income students.
If approved by Congress, the plan would effectively end government-guaranteed loans to students by banks and other private lenders?lending that has totaled $56.7 billion in the current school year, and has been the primary source of college financial aid since the program was launched in the 1960s
Sorry Andy...I know you said no quotes, but I had to show that I was not incorrect...
Again, the misinformation available about student loans is endless. I had to explain to a CPA once what "capitalized interest" was.
Let's do a little math shall we?
The total of $56.7 billion includes all subsidized, unsubsidized, and parent plus loans. Unsubsidized and parent plus loans do not qualify for interest subsidies by the government. So approximately 1/3 of that number is eligible for subsidies from the federal government of about $18,900,000,000.00 give or take.
Interest on a student loan accrues from the date it is disbursed or sent to the school, either electronically or via check. Student loans accrue interest based on the SDI or simple daily interest formula. That formula is as follows:
Principle X Interest Rate / 365.25 = The amount per day in interest you accrue. The current interest rate is 5.6%. So here's some numbers for you:
1 day of interest - $2,897,741.27
30 days of interest - $86,932,238.19
3 months or 1 quarter - $260,796,714.58
4 quarters or 1 year - $1,043,186,858.32
That amount of interest that accrues in one quarter on subsidized loans is paid by the federal government to private lenders every quarter. I have seen one of those checks and it would make a lottery winner feel like they were being short changed. This is only on the loans that were disbursed last year, it does not include the loans that are already on the books.
Those subsidies are paid for the life of the loan anytime the student is enrolled at least halftime in school, the six months after graduation or the student is no longer enrolled at least half time. They also receive the subsidy when a student qualifies for a deferment. Deferments can be given, depending on when the loan was taken out, due to unemployment, pregnancy (only available on older loans), economic hardship, internship or residency (only available on older loans), military service (only available on older loans), national service (only available on older loans and specifically for Peace Corps and Ameri Corps), and if a student goes back to school at least half time.
That just covers the interest subsidies. Let's not forget that of that $56,700,000,000.00 all are subject to originations and guarantor fees deducted from the total loan amount upon disbursement. At minimum that amount is 1.5%. So using our calculators we come up with a total amount received last year of $850,500,000.00.
Also to clarify here are some of the limits to which you or your child are held to for these types of loans. The difference is made up with scholarships and private loans.
DependentAnnual loan limitFreshman$5,500
($3,500 between subsidized and unsubsidized, plus an additional $2,000 unsubsidized)Sophomore$6,500
($4,500 between subsidized and unsubsidized, plus an additional $2,000 unsubsidized)Junior or senior$7,500
($5,500 between subsidized and unsubsidized, plus an additional $2,000 unsubsidized)IndependentAnnual loan limitFreshman$9,500
($3,500 between subsidized and unsubsidized, plus an additional $6,000 unsubsidized)Sophomore$10,500
($4,500 between subsidized and unsubsidized, plus an additional $6,000 unsubsidized)Junior or senior$12,500
($5,500 between subsidized and unsubsidized, plus an additional $7,000 unsubsidized)Graduate or professional$20,500
($8,500 between subsidized and unsubsidized, plus an additional $12,000 unsubsidized)
Lifetime limitsUndergraduate dependent lifetime limit$31,000
(up to $23,000 may be subsidized)Undergraduate independent lifetime limit$57,500
(up to $23,000 may be subsidized)Graduate or professional lifetime limit$138,500
(up to $65,000 may be subsidized) or $224,000
(for health professions). Limits may vary by school. See your financial aid officer for more information.
