Market Overview

Student Loan Interest Rate Freeze May Not Apply to All

Related COCO
8-K Shows Corithian Enters Into A Consent Pact
Top 4 Stocks In The Education & Training Services Industry With The Highest Revenue

Congress looks set to approve a deal to freeze interest rates on student loans at the current levels, preventing them from nearly doubling and, as a result, forcing students to pay thousands of dollars more.

However, a report in the Tucson Citizen suggests that the relief deal will only help undergraduate students, while graduate students continue to get hit.

According to article, graduate students already pay a higher rate than undergraduates, and they will no longer be eligible for subsidized loans from July 1. Interest will build up while the students are studying.

As part of the new deal, rates on Stafford loans are due to jump to 6.8 percent on Sunday but they will stay at 3.4 percent for undergraduates.

"We basically have the student-loan issue worked out," Senate Majority Leader Harry Reid told reporters. Minority Leader Mitch McConnell added, "Sen. Reid and I have an understanding we think will be acceptable to the House."

The big question raised by the new deal is whether this interest rate freeze is enough. Or will it be simply a case of making life easier for one group of students and more difficult for another?

The national average for a student loan is currently around $25,000. A student borrowing that amount currently pays roughly $10,000 in interest over 10 years following graduation. A student, for example, who borrowed $16,000, expects to see that figure increase to $26,000 over 10 years.

The proposed rate increase would see the amount of interest rise to $23,000, meaning that the same person would pay $39,000 over the same period.

The concern is that, if the rates still double a year later, the impact of the freeze on the overall debt will be minimal. At the very least, the deal does appear to be a step in the right direction while lawmakers desperately search for the $6 million required to make any interest hike unnecessary.

Meanwhile, the Christian Science Monitor is reporting that for-profit colleges are at risk of losing federal financial aid as they leave students with an incredible amount of debt while failing to satisfy the "gainful employment" rule introduced by the current administration a year ago.

Corinthian Colleges (NASDAQ: COCO), for example, saw 40 out of 637 of its programs fail to meet the rule's metrics. Career Education Corp. (NASDAQ: CECO) performed similarly badly.

Arne Duncan, education secretary, said in a statement, "Career colleges have a responsibility to prepare people for jobs at a price they can afford. Schools that cannot meet these very reasonable standards are on notice: invest in your students' success, or taxpayers can no longer invest in you."

Apollo Group (NASDAQ: APOL), the largest for-profit group in the United States, has had a good year so far, reporting earnings that topped analyst estimates and a profit projection of $740 million, all while students remain unsurprisingly reluctant to take on extra debt.

On Thursday morning, Corinthian Colleges traded at about $2.60, up roughly 0.35 percent. Apollo Group traded at about $35.30, down roughly 1.5 percent. Career Education Corp. traded at about $6.28, up roughly 2.0 percent.

Follow me @BCallwood.

Posted-In: Apollo Group Career Education Corp. Congress corinthian collegesNews Rumors Politics


Related Articles (APOL + CECO)

View Comments and Join the Discussion!