Beginning next month, the burden of education loans will be partially lifted for some students.
As of July 1, the interest rates on subsidized Stafford loans will dip from 6.0 percent to 5.6 percent as part of a new debt-reduction plan.
The reduction is part of a four-year plan to incrementally reduce interest rates each year until 2011, when rates are expected to drop as low as 3.4 percent, said Rick Wilder, associate director of Student Financial Affairs at UF.
"There are a number of undergraduate students who will benefit from the
interest rate reduction," Wilder said. "Anytime interest rates go down, the amount a student has to repay will be less."
The Obama Administration has implemented this reduction, under the College Cost Reduction and Access Law, to encourage students to stay in school longer by making it more affordable and to wait to enter the job market until the economy is more stable.
"The reduced interest rates are a good way to increase the demand for education, a good use of government resources during the recession because the more people are in school, the fewer there are jostling with each other to get the limited number of entry-level jobs," said David Denslow, economic analyst and macroeconomics professor at UF.
For many UF students, the rate reductions will be a huge weight off their shoulders.
"Knowing I can now pay back less than I had originally expected is awesome and knowing the rates are continuing to drop is even better," said Claire Meharg, a 19-year-old UF junior who took out a subsidized Stafford loan before coming to UF.
But the relief doesn't come without negative effects, Denslow said.
"The chief problem is that while the low rates increase the demand for higher education, they don't do as much to increase the supply," he said.
Student loans are an investment that benefits both the students and the government, he said.
According to Denslow, the country needs the investment during the recession so that the current generation of college students will be able to support the baby boomers on Social Security, Medicare and Medicaid.
The current generation is going to have to be highly productive for that these benefits to be possible, Denslow said.
Due to the recession, state funded universities as well as community colleges have had to cut back on enrollment. While the lower rates make college more affordable, they also make college more competitive because more people are competing for fewer spots, Denslow said.
"Lowering the amount I have to repay after graduation is a relief, but the insecurities we all have about our unstable economy still stand," Meharg said.
The new plan also includes an increase in funds available for students who qualify for the Pell Grant Scholarship.
The maximum Pell Grant Scholarship for the 2009-2010 school year will be $5,350, more than $600 above last year's award.
Increases in student awards are due to the funding boosts provided by the College Cost Reduction Act.
About 6 million students receive the Pell grant each year.
