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Student Loan Interest Rates in Jeopardy

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High student loan payments are a source of stress for recent grads who borrowed to attend college. If Congress fails to intervene, loan payments will go up for students taking out unsubsidized Stafford loans. Current interest rates are set to double on July 1, 2012—increasing from 3.4 percent to 6.8 percent.

Subdizided vs Unsubsidized Loans

Federal Stafford loans are either subsidized or unsubsidized. Subsidized loans are available to students who demonstrate financial need and interest is not charged while the student is in school at least half-time. Students do not have to demonstrate financial need to take out unsubsidized loans but interest begins to accrue as soon as funds are disbursed, which means that more money must be repaid.

Average in-state tuition and fees at four-year public colleges have risen about 8 percent in the past year alone, increasing students’ costs to more than $8,000 per year. To put things into perspective even further, U.S. Secretary of Education Arne Duncan blogged for the Huffington Post that college costs have increased almost 5 times faster than median household income since 1995. More students are paying for college with student loans than ever before.

Rate Increase Would Affect Millions of Students

Democrats and Republicans are both in agreement that allowing the interest rates to double would wreak havoc across the country. According to the Associated Press, the Department of Education estimates that 30 percent of undergrads have unsubsidized Stafford loans. U.S. News and World Report also explains that the scheduled student loan rate increase could raise the cost of repayment by an average of $1000 each for roughly seven million undergraduate students.

The current rate of 3.4 percent has only been in effect for one year. When legislation passed in 2007 to help lessen the cost of going to college, the rate was lowered gradually rather than all at once but is set to expire this year. President Barack Obama supports low student loan interest rates, telling the American public, “Michelle and I, we’ve been in your shoes, we didn’t come from wealthy families. So when we graduated from college and law school, we had a mountain of debt. When we married, we got poorer together.”

Funding the Student Loan Interest Rate “Decrease”

The House has already voted to prevent the rate from skyrocketing and the Senate is also against the increase, but Democrats and Republicans have different ideas on to afford the roughly $6 billion change. Politico reports that Republicans want to move money from a public health prevention fund from the Democrats’ 2012 health care law and Democrats are considering closing corporate tax loopholes.

“I don’t think anybody thinks this interest rate ought to be allowed to rise,” Senate Minority Leader Mitch McConnell (R-Ky.) told reporters last week. “The question is: How do you pay for it? How long do you do the extension?”


Melissa Rhone+

Melissa Rhone earned her Bachelor of Music in Education from the University of Tampa. She resides in the Tampa Bay area and enjoys writing about college, pop culture, and epilepsy awareness.

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