Who wants a student loan with a 1% interest rate?
Here’s what you need to know.
The Washington State House of Representatives passed new legislation — House Bill 1736 — which would establish student loans as follows:
- student loans with a 1% interest rate;
- available for both undergraduate and graduate student loans; and
- available to Washington residents.
“We’ve heard stories over and over about how debt is overburdening students, and it’s time to do something about it,” House Majority Leader Pat Sullivan said. “While the state can’t cancel federal student loan debt, we can provide hope for students to be able to access a college education without taking on crushing, high-interest debt that puts things like home ownership out of reach after they graduate.”
(Student loan forgiveness could be the reason why Democrats will lose the midterm election).
How 1% student loans would work
Here’s how the 1% student loans would work:
- The legislation would create a new student loan account funded by a $300 million transfer from the state’s general fund;
- Each year, beginning in 2024, student loan borrowers could get up to $3,000 for undergraduate students and up to $5,000 for graduate students. (This is substantially less than federal student loans);
- Student loan interest wouldn’t accrue while student loan borrowers are in school;
- Student loan interest only would accrue after a six-month grace period after graduation or if the student loan borrower drops to less than half-time enrollment; and
- Similar to current loans, interest does not accrue while the borrower is still a student. Once you are no longer enrolled in the school at least half-time for six months, interest will start to accrue.
“Students shouldn’t have to be saddled with ridiculously high interest student loans just so they can get a degree that opens doors for good-paying jobs in our state,” Sullivan said. “With this program, they have a more affordable option.”
The Washington Senate will now consider the bill.
(Here’s where President Joe Biden stands on student loan cancellation).
Student loans with no interest
While Washington State may offer 1% student loans, Washington, D.C. has yet to adopt student loans with no interest. (Free college dropped from Biden agenda. student loan cancellation may be next on the chopping block). That said, Sen. Marco Rubio (R-FL) reintroduced legislation — the Leveraging Opportunities for Americans Now (LOAN) Act — that would eliminate interest rates on federal student loans. Here’s how it would work:
- Eliminates interest on federal student loans;
- Institutes a one-time, non-compounding origination fee that student loan borrowers will pay over the life of their student loan;
- The origination fee doesn’t increase over time; and
- Student loan borrowers automatically will be placed in an income-based repayment (IBR) plan.
While Congress or President Joe Biden hasn’t endorsed Rubio’s plan, the proposal represents one alternative to traditional student loans. Borrowers may like the 0% interest rate, but may object to the origination fee.
With the end of temporary student loan relief nearing, make sure you’re prepared for the restart of federal student loan payments. Review all your options to find which one works best for you. Here are some popular ways to save money: