On Monday, July 1st, interest rates on federally subsidized Stafford student loans are scheduled to double from 3.4% to 6.8%. Senate leaders tried to strike a deal that would mitigate the costs to students, but they broke for a weeklong recess without making a deal and so for now the interest rate is set to go up. The Senate will have an opportunity to pass a deal retroactively, but there’s still no consensus on the best way to move forward.
Senators have yet to decide whether to establish a specific number that would put some of the debt burden on taxpayers, or perhaps to tether the interest rate to treasury notes and allow them to rise and fall with market forces. Another option, considered most likely by some Senators, is to freeze the current interest rates and revisit the issue in the next year.
What’s been the thorn that’s kept the Senate from coming up with a plan? What would be the impact of tying the interest rate to the treasury? What if the interest rates do indeed double? What would be the impact on current and future students? Will this lead to a major shift in the amount of people that opt for college?
Mark Kantrowiz, Student loan expert and publisher of FinAid.org