Clock Is Ticking With Subsidized Student Loan Interest Rates Set To Double

CNN Money reports that on July 1, 2013, the interest rates on subsidized federal student loans are set to rise, doubling to 6.8%.  Congress lowered the interest rate six years ago, and the provision will sunset soon without legislative action.  Republicans and the president are at odds in their approach to the dilemma, giving seven million students who rely upon these loans even more reason to be nervous about their ballooning debt.

In May, the Republican-controlled House of Representatives passed a bill that would stop the rates from doubling this summer, but President Obama promised to veto it, since it permits rates to rise in the future.  The president and Republicans also disagree on:

• how to cap student rates,
• how much “little extra” students should pay to cover the cost of the program,
• how to let students “lock in” their rates from year to year, and
• how to spend extra revenue made through student loans.

Senate Democrats would like to charge students only what it costs the federal government to make the loans, and no more.  They propose eliminating tax breaks for the oil and gas industry in order to pay for the program.

Student groups are calling for Congress to extend the existing 3.4% rate for an additional year while a more permanent solution is designed.  According to the Pew Research Center, in 2010, 19% of households had student loan debt, up from 15% just three years earlier.  Average student loan debt in 2011 was $27,000.  Only mortgages account for higher consumer debt.