Financial aid analyst: Would Stafford Loan interest cut hurt Pell Grants?

Kantrowitz

College finance expert Mark Kantrowitz of FinAid.org isn’t too hot on the the bill cosponsored by U.S. Rep. Keith Ellison (D-Minneapolis) that would freeze the interest rate on Stafford Loans at 3.4 percent.

A 2007 law cut the rate from its original 6.8 percent, and when the provision expires in July, the rate is set to return to that level.

Ellison wants to keep that permanently at 3.4 percent, and downplayed the cost to the government, which effectively took over the handling of student loans in 2010.

In my call to Kantrowitz, the analyst estimated that the lower rate will cost the government about $7 billion a year lost interest.

“That’s a lot of money. The big question is: Where does it come from? What other student aid program must be cut to provide low interest rates? That’s what it boils down to, and that’s why public policy advocates like myself are really concerned. If it comes at the cost of cutting the Pell Grant, that’s a problem.”

Students would save $7-8 per month for each year borrowed, he said. A student who borrowed for four years would then save around $28-32 a month — or about $350 a year on average, by my calculation.

Although students facing the rates would benefit, Kantrowitz said, reducing the rate provided “no public policy benefit.”

I’ll try to return to this later.