Beware: Bad News for Student Loan Rates

Beware: Bad News for Student Loan Rates

July 1 is encroaching quickly upon us, and Congress still has not reached a conclusion on how to keep interest rates from rising on Stafford loans for the 7 million college students who take the subsidized government loan, CNN Money reports.

The interest rates for this loan will increase to 6.8% next week, but the rate rise does not affect existing loans, only loans taken out after the start date. Rates for unsubsidized government loans, which will not be affected by this spike, have remained at 6.8% since 2007.

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Plans for a Rate Fix

Democrats and Republicans have different ideas on how to deal with the rising interest rates, which has contributed to the delay of legislative action. Republicans proposed a bill preventing the rates from doubling now, but would increase the rates later. Senate Democrats oppose this bill, instead advocating for ways to extend the low rates for another two years.

More innovative approaches have been brought to the table, as well. To revamp the entire loan program, President Obama and House Republicans suggested methods in which to tie student loan rates to the rate of 10-year Treasury notes. Senate Democrats, on the other hand, want Congress to charge students only what it costs for the government to provide the loans and to end some tax breaks for the oil and gas industries to pay for their plan.

With the deadline fast approaching, Congress needs to reach a solution soon. Student loan debt is now the second largest type of debt consumers carry, after mortgage debt. In 2011, students owed an average of $27,000 in loans.

Student loans have become the debt of choice among young adults. How will you pay off your student loans? The possibility for rising rates provides incentives to understand your student loans and choose the best ones.

RELATED: Student Loan Debt Thwarts Grads' Goals

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