Student Loan Interest Rates In Danger of Going Up

Unless Congress acts, the interest rate for federal student loans will double this summer. Loans taken out for the current school year carried an interest rate of 3.4 percent because of a 2007 law that phased in reductions for subsidized Stafford loans to undergraduate college students. But that law did not specify rates after this year, so unless Congress passes new legislation, the rate will revert back to 6.8 percent, where it was in 2007.

In his State of the Union address on Tuesday, President Obama urged Congress to stop the rate from going higher. He also asked for an extension to the enhanced Hope Scholarship program, which increased the maximum tax credit to $2,500; and he also wants to double the number of federal work-study jobs. It remains to be seen if Congress will act, however, as extending the 3.4 percent rate would cost $5.6 billion a year, according to an economist that calculated the proposals made by the President on Tuesday. In all, Obama’s proposals would cost at least $10 billion a year.

While Obama has focused on improving access to college educations for low and middle-income children, lawmakers have taken steps to lessen the cost of student aid, eliminating subsidized loans for graduate students and most discounts. Congress has also cut $8 billion from the fund for Pell Grants and reduced the minimum income threshold for students to qualify. Given these moves, it’s unlikely Congress will take action to increase student funding.