Millions of students will see the interest rates on their student loans double.
June 29, 2013 ?? – More than 7 million students will see interest rates on their student loans double from 3.4% to 6.8% on Monday, after Congress failed to pass legislation to prevent the automatic rate hike which they successfully pushed back a year last summer.
Despite the introduction of several bills to serve as a solution, lawmakers will leave for the weeklong vacation of July 4 without implementing any of them, letting the July 1 deadline pass. Any student taking or renewing federally subsidized Stafford loans after this deadline can expect to pay, for example, an additional $ 3,000 on a loan of $ 23,000 repaid over 10 years.
House Republicans passed the Smarter Solutions for Students Act on May 23, a measure that links student loan interest rates to market rates. This plan would have reset student loan rates each year based on the U.S. Treasury bill rate, which Senate Democrats said was too uncertain and with a cap of 8.5% could push rates even higher than 6.8%.
Mitchell Weiss, a student debt expert and contributor to Credit.com, has followed the issue closely.
“The increase has an impact on subsidized Stafford rates, which will now double to 6.8%, which is equivalent to that of unsubsidized Stafford loans,” Weiss said. “While the population of subsidized borrowers is smaller and the House can certainly act to remedy the situation retroactively, I am actually more concerned with the suite of House and Senate proposals that would index all student loan interest.” on the wrong Treasury note while subjecting the resulting rate to an unreasonably high mark-up intended to cover administrative costs that have yet to be verified. “
Other plans for student loan rates
President Obama called for a plan similar to the Smarter Solutions Act in his budget proposal in April, linking interest rates to 10-year Treasury bill yields, plus 0.93% for low-income students, 2 , 93% for other undergraduates and 3.93% for graduates. student and parent loans PLUS. Although the two propositions promise a lower interest rate linked to current market rates, many warn that families will pay more in the long run due to market fluctuations.
In contrast, Senators Kay Hagan (DN.C.) and Jack Reed (DR.I.) introduces an alternative which extends the current rate of 3.4% by one year, offsetting that cost by closing tax loopholes on legacy pension funds and oil companies. A similar bill proposing a two-year deadline failed due to Republican obstruction in the Senate earlier this month.
An additional amount of, bipartite agreement introduced Thursday by Senators Joe Manchin (DW.V.), Richard Burr (RN.C.) and four others proposed to fix interest rates on the 10-year Treasury bill plus 1.85%. Under this plan, graduate loans would be at market rates plus 3.4%, and parents’ interest PLUS at market rates plus 4.4%, with all loans at fixed interest rates. for the duration of the loan.
The Senate will vote when convened on July 10 and may retroactively modify student loan rates based on their final agreement.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.