Student loan rates double after Congress stalls

Some 7 million borrowers will be hit this fall with new costs of 6.8%, though some lawmakers are still pushing to delay any increase for an additional year.

By Kim Peterson Jul 1, 2013 1:48PM
Image: College graduate (© Corbis)A new 6.8% rate for government-backed student loans kicked in Monday after Congress failed to make any headway on resolving the issue.

The rate is double the 3.4% students previously received for federal Stafford loans, and it could be a tough adjustment for students borrowing in August for the fall semester. The average college student who borrows for four years will pay $4,000 more, the White House estimated.

There's still time for Congress to cut a deal, although whether that will happen is unclear. Democrats set the rate at 3.4% before Republicans took control of the House in 2011, The New York Times reports. Republicans extended the low rate for one year last June but did not repeat the move this year.

Republicans and President Barack Obama want to tie student loan rates to the 10-year Treasury note, which lately has seen a rate of a bit more than 2%. But the sides are quibbling over whether the rates should have a cap and how often they would reset. The Republican bill would cut the budget by $3.7 billion over 10 years, the Times reported.

Two Democratic senators are pushing to keep the rate at 3.4% for an additional year while Congress tries again to resolve the issue. That may still happen if a vote takes place after Congress returns from its July 4 recess.

What should students do in the meantime? Here are five tips from Reuters:
  • Use up your 529 savings account first to pay for college.
  • Look at alternative loans, such as a home equity line of credit for parents.
  • Shop around.
  • Find an off-campus job.
  • Make sure college is right for you.

More on moneyNOW

103Comments
Jul 1, 2013 2:29PM
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Home equity lines of credit ??? So parents should put their homes at risk? How about community college for 1 to 2 years while working and possibly living at home to save money, or living with 5 roommates like many people do?
Jul 1, 2013 2:39PM
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Congress is useless!  They should be ashamed, we are paying for their salaries.  Any other job in the US and they all would be fired!
Jul 1, 2013 2:11PM
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The Democrats wrote the bill up like this because Obama was up for re-election and it looked good to the young people.  The Democrats knew that the interest rate was going to go up, and they knew that the extra money was needed to cover a bit of the cost in the ACA....Obamacare.  Once again, the young folks just learned a hard lesson from the man they voted for.
Jul 1, 2013 2:04PM
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God bless our congress for being such a$$ holes
Jul 1, 2013 2:31PM
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This happened in the Democrat controlled Senate not the House of Representatives.
Jul 1, 2013 3:07PM
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Given the number of "Occupy Somethings" that sit around major metropolitans with useless degrees and high student debt, this maybe a blessing in disguise for new students.  Don't go away to big money schools until you can afford it.  You have options;

 

1.) community colleges

2.) state schools vs. private colleges

3.) military service (GI Bill)

4.) go to work first, earn and save some money

Jul 1, 2013 2:19PM
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We are $17 trillion in debt.  We need to control giving government subsidies for every Tom, Richard, and Sally who wants to be a professional student.  Realize it is tough and very expensive as our family has paid for two undergrad and one graduate degree.  But there are many additional options not mentioned.  Our youth need additional emphasis on personal responsibility, educational ownership, and work to ensure their success.
Jul 1, 2013 2:19PM
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The irony here is that the doubling interest rate would actually benefit the Federal government.
Jul 1, 2013 3:08PM
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College is totally overrated.  Government should leave the student loan business completely.
Jul 1, 2013 2:31PM
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Buyer beware. We're ALL paying for the student loan mess. Although you cannot discharge the loans in bankruptcy, the dirty little secret is that there are institutions that are getting people to vocational and community colleges with high rates and these people don't stand a chance of getting employment making more than minimum wage. They are even allowed to allow the homeless to qualify for loans - why? They are federally (THAT MEANS TAXPAYER PAID) insured.
Just another scam.
Those that really do attend legitimate schools find themselves flipping burgers and going into default. How is that helping anyone?

Jul 1, 2013 4:09PM
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The reason all you parents owe so much on the loans is not the interest, it is the inflated cost of education.   The government needs to get out of the education subsidy business and let the colleges charge what the market will bear.  My guess is the result would be lower tuition costs, colleges would have to lower their costs like any business does to be competitive.  Excuse me, any business that is not supported by the federal government.
Jul 1, 2013 2:23PM
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Yep and we keep digging ourselves a bigger hole when it comes to education. Oh wait, borrow it from your parents as Mitt would say.
Jul 1, 2013 3:38PM
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1. major in something useful

2. If you're not sure about your future work a couple years or go to CC

3. If possible choose a state school vs private school

 

there 3 easy steps to keep your total amount borrowed down or have a better chance at making a good living. Whether it be parents, teachers, guidance consolers, ect. The youth need to know these facts.

Jul 1, 2013 4:09PM
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If we had no national debt I imagine higher education could be free in this country. Instead a large percentage of our tax dollars goes towards paying only the interest on our debt. Not to mention the billions of dollars wasted on foreign aid to people who hate us. Obama wants to give billions to bring electricity to Africa  when our own students are hurting. I can't wait for this nightmare to be over.
Jul 1, 2013 4:02PM
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All the politicians out there with college degrees and not one of them knows what a monthly income statement is!!  Don't you people in DC know how to balance a checkbook for God's sake!!!  Dumbest people on the face of the earth!! Lets steal a little bit from the senior citizens monthly paycheck and then charge double the finance rates on student loans while letting welfare and medicare fraud run rampant and granting every Tom, Dick and Harry citizenship for "FREE" programs!!!!  Incredible!!  They are so out of touch with reality.  I believe they should change the term and age limits of all politicians immediately and make every one of them submit to a logic test.  They would all fail miserably. Get rid of everybody over 60 years old.     

Jul 1, 2013 2:47PM
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Recess? They get all that time off and play-time too?
Jul 1, 2013 3:58PM
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Tip number 5: Make sure college is right for you......Seriously??  Who could possibly survive on minimum wage in today's economy? Sure, 25 years ago college may have been an option.  Today, a fresh college degree is merely a 'jumping off point'.  I really hate that our country's leadership is making it even harder for a person to educate themselves :(
Jul 1, 2013 5:23PM
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If it were up to me there wouldn't be a student load program. They shouldn't give loans to students who's majors won't pay enough to pay off the loans. Get a job and work your way through college, you will appreciate it much more. I married, had children(7 total.) took care of my family and paid for college and med school working full time and don't owe anyone anything.
Jul 1, 2013 6:26PM
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How about taking it off the parents backs? Like it used to be.  What happened that all of the sudden parents became responsible for their childrens education.  Why I am responsible for my Adult child until 24 1/2 years old?  I can't claim the child anymore on my taxes, they live on their own, I have no access to their grades, records, etc.  So why do I need to provide financial information? 
Jul 1, 2013 5:33PM
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Hey students, how about paying your own bills?  Maybe a part-time job?
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