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Are Your Student Loan Interest Rates Going to Increase or Not?

by on June 28, 2012

By Samantha Savory

On average, federal student loans are lent out on an interest rate of 2.8 to 6.8 percent. Over the past several months, congress officials have been unable to put together and pass legislation that pleased both political parties while preventing the rate from significantly increasing. What is there to disagree over? Why would political leaders not want to help ease the cost of getting a higher education?  College tuition is already at an all-time high, living costs are just as intense so adding additional costs onto borrowed money would just cripple college students even more.

Many politicians are concerned about the lack of income or “cost” that the national deficit will incur if interest rates don’t increase. Ideally, the federal government wants to incur as much income as possible to put towards various government programs and most importantly, to help reduce the federal deficit.  But after battling over this pressing economic issue for months, and getting President Obama and Republican presidential nominee Mitt Romney involved in the debate, it appears that a decision has been made.

According to the Washington Post, Congress has finally agreed on a deal to stop student loan rates from increasing from their current 3.4 rate to 6.8 percent.  That is a savings of about $1,000 per student affecting nearly seven million college students. Although this is good news, it is not great. The deal will only freeze student loan interest rates for one year which means students may find themselves in this same exact situation 12 months from now.

According to Senate Majority Leader Harry M. Reid (D-Nev.), the interest rate extension would be paid for by raising premiums for federal pension insurance, an idea acceptable to businesses because rules will also be changed on how companies calculate their pension liabilities.

The student loan debt epidemic in America has been a huge topic of debate over the past 12 to 18 months as many economists agree it is the major factor leading to the U.S. economy not fully recovering from the 2008 recession.  Many new college graduates are unable to fully financial support themselves or buy their first home because they already have a monthly mortgage payment in the form of student loan debt.

To prove this point, last November, student loan debt officially outpaced revolving credit card debt surpassing $1 trillion, which has never happened in American history.

The deal on student loan interest rates is not final and has yet to be passed, but officials say it is expected to become law before the July 1 deadline. For more details, head over to the Washington Post.

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