Student Loan Interest to Double if Congress Doesn’t Act

Students are taking out record amounts of student loans in to pay for college degrees to secure their financial future with a good paying job. Unfortunately, after students earn a degree many are unable to find full-time employment upon graduation. Many people now question the actual value of a college degree. Economists agree that the average college graduate will earn more than a typical high school graduate. However, the amount of debt that students have taken out, coupled with unemployment and economic hardship, has created an increasingly large problem.

To add to the massive debt burden that many students and graduates are currently facing, there is a lot of talk about raising the interest rates on federal student loans currently offered. The present rate of 3.4 percent is set to double to 6.8 percent on July 1st unless Congress takes action. There are many factors that govern student loan interest rates, but Congress has the ability to set whatever rate it chooses and keep these loans affordable.

With the average student today graduating with over $24,000 in student loan debt-the interest rate that they will have to pay back debt at is extremely important. Student loan debt combined with many new graduates’ inability to find full-time work in their preferred field has made it a lot more difficult to make the required minimum monthly payments. An increase of a single percentage point can mean that a former student will pay thousands of dollars more than he or she otherwise would have over the life of their student loan. Because there are so many people who will pay their student loans for decades, even a small increase in the interest rate can affect their finances for the rest of their lives.

Unfortunately, the bad economy has led to record high levels of student loan defaults. It is the fear of many economists that increasing the interest rates on student loans could lead to even more defaults. This is because an increase in rates will force the monthly payment amounts of these student loans to increase.

It should be noted that the interest rate, if Congress approves it, would not affect people who already have student loans. Rather, these rules will apply to people who are taking out new student loans for the upcoming school year. Thus, this rate change will affect current and future students, but not people who have already graduated.

Nonetheless, a rate increase has the potential to affect the financial futures of thousands of young people. It will be important to monitor what Congress decides to do.