Interest rates for subsidized loans may double July 1

June 18, 2013 7:48:28 PM PDT
Unless Congress does something about it, the interest rate on subsidized loans will double on July 1 from 3.4 percent to 6.8 percent. An increase could make it difficult for many students to go to college.

Sarah Mayo is a sophomore at San Francisco State University. Doubling the interest rate on her Subsidized Federal Stafford Loan would be a financial burden.

"That kind of makes me angry because lots of students don't really have other options besides grants and loans and we're kind of like forced if we want a greater education, to have these loans," Mayo said.

They are called subsidized because the government picks up a portion of the interest rate so that students with financial needs won't have to.

If the interest rate goes up from the current 3.4 percent to 6.8 percent, the Congressional Budget Office projects the government will make a profit of $173 billion over the next 10 years.

The Republicans want a fixed rate, something President Barack Obama has favored in the past. However, the Democrats want to freeze the interest rates for another two years.

"But it's not fair to these students and not fair to students across the country who need to know what the cost of their loans is going to be and what the interest rate is going to be," House Speaker John Boehner, R-Ohio, said.

But financial professionals worry students will have to dish out more money to make those payments.

"You have folks who are getting out of schools looking for a job, have a loan payment to make, they may not be able to make it. If they default on that loan payment, now they may not get hired because employers are now checking your credit rating," Liberty Group spokesman David Hollander said.

This increase would apply only to those undergraduates either starting or continuing with their education in the fall. So if you have already graduated and are paying off that Stafford loan nothing will change.

Congress has until July 1 to act.


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