Congress Lets the Student Loan Interest Rate Double Today

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Today is July 1, and that means the interest rates on federally subsidized student loans double from 3.4 percent to 6.8 percent. Happy July!

Congress, which sets the rates, didn’t exactly want this to happen, but none of the competing plans to address it from the House the Senate managed to take hold, and thus we’re left with the doubling rates.

The subsidized Stafford loans, intended for undergraduates who demonstrate financial need, are attractive because interest doesn’t accrue until graduation.The rates were set to double last year around this time, but election year momentum propelled Congress to pass a last-minute extension, keeping the rates low until … today! When another compromise first looked to be falling apart, The Atlantic’s Jordan Weissman laid out the details on who this affects and how hard it hits them: Current borrowers won’t see a change in their rates. But if Congress doesn’t retroactively address the hike, about 7 million new borrowers will pay the higher interest rate. The Congressional Research Service calculated that if a student borrowed the maximum $23,000 over five years, their monthly repayment tab would be about $39 higher at the new rate. Weissman notes:

For some people, that’s the cost of a nice dinner out or two. For others, that’s the difference between paying the electric bill or not.

The proposal to avoid all this with which you’re probably most familiar was Elizabeth Warren’s. The Senator from Massachusetts suggested that Stafford rates match those of the rates banks get when they borrow from the Federal Reserve. She also signed on to a Senate plan that would have extended the 3.4 percent interest rate another two years. The Republican-led House, meanwhile, had a plan to peg rates to yields on Treasury bonds.

That’s not to say we’re done talking about the subject just because Congress missed the deadline. No doubt people are hoping that the actual jump in rates will galvanize interest in forging a compromise. Indeed, you can probably expect to hear more about student loan rates in the coming months, not less.