Student Loans; Deal on Rates

Last week the Senate finalized its version of a bill to lower rates on federally subsidized student loans for higher education.  This bill will have to be reconciled with the House version, but it is expected to be signed by the president before students head back to campus in the fall.  The proposed deal will lower the current cost of borrowing after an increase on July 1 doubled the current rate for Federal Stafford loans.  Under the new plan, the current rate for undergrads would fall to 3.85% (5.4% for grad students and 6.4% for parents).  The rates going forward would be tied to the 10-year Treasury Note and could float up as rates rise, but would be capped at 8.25% (9.25% and 10.5%, respectively for grad students and parents).  This reduction in borrowing costs will make college more affordable and is a positive for both students and the institutions providing the education, as it could bolster demand.  Critics of the deal point out that it is not the rate charged but the total amount that must be borrowed to attend college that is a long-term issue.  We continue to find value in select revenue bonds from medium to large public and private higher education institutions and view this development as a credit positive.