Unpredictable Interest Rates Make Federal Grants Even More Important

According to Congressional Budget Office estimates for the 2015-16 school year, the average undergraduate borrower will pay 5.72 percent to borrow from the federal government; for graduate borrowers the rate is forecasted at 7.27 percent, and for Parent Plus loans, 8.27 percent. All rates are higher than what students paid to take out loans this year.

What may be even more troubling than the rising interest rates is that the CBO has projected that the federal government will generate $127 billion in profits from loan payments over the next decade.

The high cost of college makes higher education inaccessible for many low- and moderate-income students, which means that many will have to take on large amounts of debt to pay for school. While the federal government has a role to play in helping students go to college, it is not a private bank and should not be able to collect billions of dollars in profits. What it should be doing is protecting and making stronger non-loan federal financial aid programs, like the Pell Grant, so students won’t have to depend so heavily on loans that have unpredictable interest rates.  

Sen. Jack Reed (D-R.I.) said, “The Pell Grant is the cornerstone of our federal student aid programs and it needs to be preserved, protected, and strengthened for future generations. In the 1970s, the maximum Pell grant covered about 72 percent of the cost of attendance at a public four-year college. For the 2014-15 school year, the maximum grant is expected to cover less than one-third of the cost.”

The good news is that, this month, Reed and Sens. Mazie K. Hirono (D-Hawaii) and Sheldon Whitehouse (D-R.I.), as well as Congressman Ruben Hinojosa (D-Texas), introduced The Pell Grant Protection Act to preserve and expand access to Pell Grants. The bill will, among other things, allow Congress to add additional money to the Pell Grant program to increase the maximum award and to restore year-round Pell Grants, allowing college students the ability to receive funding during summer months.

Pell Grants go a long way in helping millions of American students. The program is hugely important to ensuring that deserving students have the opportunity to go to college and graduate without backbreaking debt.  

Despite these positive steps to keep this necessary program strong, the purchasing power of Pell will be rendered virtually useless if states continue to disinvest in higher education and colleges continue to raise the cost of attending. College affordability will take a collaborative effort between all stakeholders.

Please click here to send a letter to your senator asking him/her to make college more affordable for low- and middle-income students by supporting The Pell Grant Protection Act.


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