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Student Loan Rates May Rise This Summer

Percentage sign with an up arrow wrapped around it
Unless Congress acts very soon, the interest rates assigned to federal student loans are scheduled to double this summer.
 
Due to a 2007 law that enacted interest rate reductions for undergraduate subsidized Stafford loans, government-backed student financing is currently offered at an interest rate of 3.4 percent. But that law is scheduled to expire this year, which will result in the interest rate doubling, propelling them to a level that hasn’t been seen since 2007: a discouraging 6.8 percent.
 
In Tuesday’s presidential State of the Union address, President Obama tried to encourage lawmakers to consider and act on this issue. But, as of now, Congress has yet to acknowledge it, and may be apprehensive to extend the rate reduction since passing such a law again would cost the country $5.6 billion a year, according Mark Kantrowitz of FinAid.Org in a CNN Money article.
 
In fact, in the recent past Congress has already eliminated federally subsidized student loans for graduate students, and cut $8 billion out of the Pell Grant program that helped low-income students fund their education.
 
“[Since] Congress just passed legislation cutting student financial aid funding, it’s unlikely they’ll pass legislation increasing student aid funding,” said Kantrowitz, according to CNN Money.
 
Setting aside Congress’s recent voting record pertaining to the student loan industry, another factor that may be pushing their votes away is the fact that President’s Obama’s additional proposals included with this rate-reducing law would total to at least $10 billion a year.
 
But in the wake of student loan protests, letting the rate hike occur could prove to be detrimental to the country’s morale.
 
“In this tough economy, people are concerned about the cost of college and the burden of debt to follow,” Lauren Asher, president of the Project on Student Debt, told CNN Money.
 
Two-thirds of students graduated in 2010 with an average student loan debt of $25,000. If the rate hike occurs, students can expect to pay an additional $5,000 over a 10 year period, said Ascher.

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