At the height of the recession, Congress opted to give students some relief, gradually dropping interest rates on subsidized Stafford loans issued to undergraduate students. This move brought rates down from 6 percent in the 2008-2009 fiscal year to 5.6 percent in 2009-2010, then 4.5 percent in 2010-2011 and 3.4 percent in 2011-2012, according to FinAid.com.
The respite was intended to be temporary, but was extended last year amid a heated presidential campaign. Absent that political pressure, the extension expired, effective July 1.
Because the interest rate reduction was slated to expire, students taking out Stafford loans for the upcoming school year were already notified of the higher rate, says Sara Harrington, assistant director of academic progress and loans at the University of Iowa.
"Many of our students that plan on borrowing a loan for the '13-14 school year coming up have already signed their loan documents," which listed the 6.8 percent rate, she says. "The entrance counseling would have told them about the interest rate because this has been the plan for several years now."
Most lawmakers agreed that allowing interest rates to double overnight was not a smart path. What they could not agree on was an alternative.
While the economy is rebounding, students are still struggling, and allowing the interest rate increase to stand will only further burden recent college graduates, according to Rep. Debbie Wasserman Schultz, D-Fla.
"As our economy continues to recover, the seven million students who rely on these loans to finance their education shouldn't face higher debt as they graduate, start a career or buy a house at a time when interest rates are at historic lows," the congresswoman wrote in a recent op-ed to U.S. News.
[Learn how congressional budget proposals could affect student loans.]
Proposals backed by both Democrats and Republicans are currently circling the halls of Congress. Most of those plans dictate market-based interest rates, which fluctuate similar to home and car loans, but vary on more technical details.
Some speculate that both houses could reach a consensus when they return to work on July 10, making the agreement retroactive. That prospect seems unlikely to Kantrowitz.
"Last I heard they were very far apart," he says. "I think the most likely scenario is it stays at 6.8 percent."
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