How Will Obama’s Budget Actually Affect Your Student Loans?

President Barack Obama often tells the story about how he didn’t pay off his student loans until he was in his 40s and the parent of two girls.

As someone who speaks from experience, Obama has addressed the ongoing problem of higher education’s affordability in his 2014 budget.

The budget states, “Providing students and their families with grant and loan assistance to help pay for postsecondary education is indispensable to ensuring that by 2020 America once again has the highest proportion of college graduates in the world.”

But what does the complicated budget mean for students?



The budget would allow for $155 billion in new grants, loans, and work-study assistance. That’s an increase of 59 percent over the 2008 budget in order to help about 14.7 million students.

Obama, an ardent supporter of Pell Grants, wants to fully fund them through 2015-16 and increase their funding by $140 per student loan. That’s not much, but increasing is always better than decreasing. Overall, it would provide nearly $30 billion in funding for the grants. The request would allow 9.4 million students to receive the grants.

Work-study programs would double under the 2014 budget, a huge step in the right direction. More students in federal work-study programs mean less loan borrowing. It would provide grants to “participating institutions to pay up to 75 percent of the wages of eligible undergraduate and graduate students working part time to help pay their college costs,” according to the budget.

All of this is part of the Obama Administration’s mission, as Secretary of Education Arne Duncan said last week on Capitol Hill.

“Education is not just an expense—it's an investment,” he said in testimony regarding the budget. “In fact, it is one of the most critical investments in the future that we, as a nation, can make. America cannot win the race for the future without investing in education—it's that simple.”

However, the Obama budget is not all sunshine, especially when it comes to student loan interest rates.

Currently, Congress sets a cap on student loan interest rates, including Stafford loans. But Obama wants to change that to tie the student loan interest to the market value of Treasury notes. That means the ten-year Treasury notes would be the yardstick for loan interest. Currently, the notes are near historic lows.

That’s good news for now, but bad news for when the notes rally with an economic upturn. Democratic leaders in Washington want the loans to stay at the current 3.4 percent interest rate, which Congress approved last summer. Many education groups also don't support linking student loans to market rates.

Lauren Asher, president of The Institute for College Access & Success (TICAS), said that Obama’s plan is not the best way to go forward.

“The president’s proposal eliminates the cap on student loan interest rates, which means actual rates for all types of federal student loans could rise even higher than currently projected,” she said in a news release. “Rates would be based on the 10-year Treasury note in the year the loan is issued plus a fixed margin depending on the type of loan. The rate would be fixed for the life of the loan, even if interest rates for new loans dropped significantly.”

For all the budget ideas Obama has laid out, none of them are a done deal. Congress will have to debate them and vote on them before students can see positive results in their bank accounts.

Rep. John Kline, a Republican from Minnesota who is the chairman of the U.S. House Committee on Education and the Workforce, said in a release, “I welcome the president’s efforts to take politicians out of the equation when it comes to calculating student loan interest rates. My Republican colleagues and I have long believed returning to a market-based system for determining interest rates just makes sense, and will provide more stability for borrowers.”

But he cautioned, that “the devil is in the details” as Congress embarks on a long discussion about the budget.

Suzi Parker is an Arkansas-based political and cultural journalist whose work frequently appears in The Washington Post and The Christian Science Monitor. She is the author of two books. @SuziParker |