Interest rates on new federal Stafford loans will double on July 1, because Congress did nothing.
Congress is ready for a little Independence Day recess, but it’s leaving college students with little to celebrate.
If anything, the folks in Congress are making financial independence even harder for young adults to achieve. They failed to keep the interest rate on new subsidized federal Stafford loans from doubling to 6.8 percent on July 1.
And that’s because they’re bickering over competing proposals, NPR says:
- Democrats want a rate at about 3.4 percent that can be locked in over the life of new loans.
- Republicans want a rate that varies like an adjustable mortgage, floating each year between 5 percent and 8.5 percent.
Senate Democrats also proposed extending the current rate through 2013 and paying for it by closing a tax loophole on certain inherited retirement plans, The Daily Beast says. They would rather address the interest rates in a larger package of student loan and debt reform that would help current and former students, not just the ones taking out loans from now on.
It’s still possible Congress could come back and pass something to bring the rate down again. But for now, the increase is expected to take effect and affect an estimated 7 million students, the Beast says. It could mean up to $4,000 in extra interest charges over a 10-year repayment plan, USA Today says.
This change will affect only new subsidized loans, not loans that students have already taken out.
These loans are meant to help lower-income families put kids through college. Unlike unsubsidized federal loans (which already have an interest rate of 6.8 percent), students must demonstrate financial need to qualify. The Education Department breaks down the differences between subsidized and unsubsidized loans, but the key one — a lower interest rate — is evaporating for those who need it most.