Interest rates on subsidized undergraduate student loans dropped Tuesday from 6.8 percent to 6 percent and will continue to decrease over the next few years thanks to federal legislation passed last September.

The College Cost Reduction and Access Act of 2007 (CCRAA) will cut interest rates on subsidized federal Stafford loans in half by 2011. Subsidized loans are those that the government pays interest on while a student is in school and a short time after graduation, said Justin Draeger, spokesperson for the National Association of Student Financial Aid Administrators.

Rep. Charlie Wilson, D-Ohio, and several Ohio University faculty members discussed the effects the act will have on college undergraduates at a news conference Tuesday.

Wilson explained that over the next three years, interest rates on subsidized federal Stafford loans will drop to 6 percent in 2008, 5.6 percent in 2009, 4.5 percent in 2010 and 3.4 percent in 2011. 

With this steady decrease, the approximate 173,000 students in Ohio who take out subsidized federal loans each year could expect to save about $2,400 in interest over the life of their loans, Wilson added.

“We believe that a college education is not just for the elite,” Wilson said.

For OU students who rely on financial aid, the act will have a significant impact. OU juniors Taryn Lentes and Samantha Pierce said that they would not be in college if it was not for financial aid, and they are enthusiastic about the effects of the CCRAA. 

There are 12,415 OU students receiving financial aid through subsidized loans, said Sondra Williams, director of student financial aid.

During the 2006-07 school year, $44,212,819 was given out to OU students in subsidized loans, Williams said. Even though these loans were distributed before July 1, the interest rates will still decrease accordingly, she said.

Despite the interest rate change, Wilson said the act will not bring additional costs to taxpayers. This is made possible by decreasing the interest rates over a three-year period and limiting other subsidies, he said.

In addition to lowering interest rates, the act will also increase the amount of appropriated funds given to students through the Pell Grant Scholarship, Draeger said.  The new legislation calls for a $490 increase this year and additional increases in the years 2010 and 2012, he said. 

In Ohio, 204,000 students receive Pell Grants each year, Wilson said. With the recent increase, the maximum Pell Grant award is $4,731 for the 2008-09 academic year, Williams said.

“(This) $490 seems like nothing with the current cost of tuition,” she said.  “But I believe that every dollar counts.” 

The act also established a new Public Service Loan Forgiveness Program, Draeger said. This program allows the Secretary of Education to cancel remaining student debt for anyone who has been employed for at least 10 years in a public service field, he added. 

“This was enacted so people would not be discouraged from going into such fields as social work, public safety, military service, etc.,” Draeger said.

With the high demand for teachers in public high schools and public middle schools, the act includes additional finances for students pursuing a career in education, Williams said.  

The TEACH grant provides $4,000 a year in federal grants to students going into teaching, Draeger said. Students do not have to pay off this grant as long as they meet the postgraduate requirements, he said.