It's D-Day for Student Loan Rates

It's D-Day for Student Loan Rates

Have student loans? Paying them off may have just gotten harder.

After the Senate failed to pass two bills that would keep the interest rate on subsidized student loans at 3.4%, rates are now set to double to 6.8% on July 1.

The measure is predicted to affect over 7 million students who have taken out federal subsidized Stafford loans, which allow borrowers to defer paying interest until they finish their schooling. The new 6.8% interest rate could mean up to $1,000 a year more in payments for those who max out their loans.


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In previous years, Congress has passed temporary measures to prevent the rate from doubling, but was unable to reach an agreement Thursday when the two bills came to a vote.

No Agreement in Sight

"There doesn't seem to be a lot of effort going on to come together on an approach  whether short-term or long-term," said Barry Toiv, vice president for public affairs at the Association of American Universities.

The first bill, proposed by Democrats, would have extended the 3.4% rate for another two years, while the Republican's alternative would have set the rate to the 10-year Treasury bill, which currently yields 2.2%, plus 3 percentage points.

President Obama has said he will veto the current Republican bill, though Republican lawmakers argue it reflects measures in the president's 2014 budget proposal and is similar to another bill that was recently passed by the House.

Obama's proposed plan would link student loan interest rates to the 10-year Treasury bill, but unlike the House bill does not include a rate cap.

RELATED: Understanding Student Loans 101

Keeping the rate at 3.4% would give Congress time to reach an agreement about a longer-term strategy, says Kim Cook, executive director of the National College Access Network. "Quite frankly, though, that's the same discussion we had last year," she says.

A long-term plan to address interest rates would involve agreeing on whether interest rates will be fixed or variable, what what would determine a variable rate, and whether borrowers could choose to consolidate their loans, Cook says.

"The politics of not acting on this are not very good for either party, and perhaps that will force their hands," Toiv says, though he added that Congress could still decide to pass legislation after that date. "The August recess could be a more serious dealine, though we rather they not mess around with this."

RELATED: Bills Aim to Stop Rising Student Loan Rates


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