Student Loan Interest Rates Set to Double on July 1
With a July 1 deadline looming, it seems unlikely that Congress will be able to stop interest rates on new federal student loans from doubling. But there may be time to address the situation before classes begin next fall.
About 7 ½ million students nationwide pay for a portion of their college tuition through subsidized Stafford Student loans. Right now, interest rates will go from 3.4% to 6.8% on July 1st.
"There is a window of opportunity for Congress to still act."
That’s Congressman Joe Courtney, who’s been trying to stop the loan program from turning into a kind of fiscal cliff for students and families. He says federal education officials agree there’s still time for a short-term solution.
"The highest volume of loan applications usually occurs in August. And if we act quickly enough in July, they feel that they can still adjust for a retroactive protection of students in terms of the lower rate."
Courtney would like to see the current rate extended for two years, giving Congress time to find a long-term fix.
House Republicans have proposed a variable rate solution, tying the Stafford program to the yield on the 10-year Treasury. That means rates would fluctuate, something Courtney does not support.
"As anyone remembers with the sub-prime mortgage, when you tie loans to variable rate structure it can be a good thing for borrowers, but it can also be catastrophic if its not done properly."
He says lawmakers just aren’t ready yet to sign off on a long term plan. And with immigration and the farm bill also competing for attention, they’re less focused on the approaching deadline.
But he says the debate over student loan rates and student debt should be a top issue. Student loan debt now exceeds credit card debt nationwide. Most students end up owing about 27,000 dollars when they graduate.