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Student loan rates go through the roof

Student loan rates for millions across the country are set to double on July 1 unless lawmakers in Congress act.

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WASHINGTON (CNNMoney) — The House on Wednesday gave final congressional approval to a bipartisan bill that ensures lower interest rates for students heading to college this fall.

President Barack Obama said he would quickly sign it.

studentloansMembers of the House voted 392 to 31 to lower rates for undergraduates taking out government loans this school year to 3.86% — cheaper than the 6.8% interest rate that kicked in on July 1.

The new rates would be retroactive and apply to loans taken out after July 1.

It has provisions for rates to go higher in coming years.

As House members debated the bill, many Republicans took credit for the deal. They noted that the Senate version wasn’t much different from their own student loan bill, which linked rates to the bond markets.

“My colleagues and I have been fighting for months for a long-term market-based solution that will serve students and taxpayers, and the legislation before us today will do just that,” said Minnesota Republican John Kline, who runs the House education panel.

The new rule doesn’t apply to loans that students get from private lenders. It only affects Stafford loans, which are made by the U.S. government to help finance a college education.

On July 1, the interest rate on subsidized Stafford loans doubled from 3.4% to 6.8%, affecting 7.4 million students. The subsidized loans are based on financial need and account for about 26% of all federal student loans, according to the Congressional Budget Office.

Unsubsidized loans and graduate loans were already paying 6.8% interest rates.

The latest bill helps all students, with the basic principle being that it ties student loan rates to the bond markets.

This fall, undergraduate students will pay an interest rate of 3.86% on their loans. It is comprised of the yield on the 10-year U.S. Treasury note on June 1, plus an additional 2.05%. Graduate students will have to pay 5.41% on loans this fall, or 3.6% over the 10-year Treasury.

If rates on Treasury notes rise, so would student loan rates under the new deal.

However, the bill makes provisions to protect students if bond yields were to spike. Loans for undergraduates will be capped at 8.25% and for graduates at 9.5%.

Over 10 years, the interest that government collects on student loans is expected to raise $715 million. It will go toward reducing deficits.

The Obama administration has been pushing for the deal, even though left-leaning Democrats opposed the bill for hiking rates in coming years.

SEATTLE — It’s a tough day to be a college student.

crpackageLoan interest rates doubled Monday, July 1, because Congress was unable to come up with a plan to avoid the increase.  Sen. Patty Murray and other Democratic members of Washington’s congressional delegation joined students at the University of Washington to urge their colleagues to act.

“College is already too expensive,” Murray said. “Congress should not make it worse.”

Before Monday, the rate on a typical student loan was 3.4%, but now that has shot up to 6.8%. That new rate will affect more than 100,000 students across Washington state who depend on loans to go to school.

“These students do not deserve to pay more,” Murray said. “They deserve our help.”

Murray and other members of Congress here are trying to freeze the low rate until Congress, which has stalled on this issue, is able to come up with long-term plan for student loans. Otherwise, they argue, students are going to suffer.

“For millions of families across the country, that is a tax hike of $1000,” she said.  “That is not fair to students. It is absolutely not good for our economy.  And Congress has to act to fix this. “

Congressman Jim McDermott, D-Seattle, argued that raising rates will benefit lenders at the expense of students.

“What we are doing is indenturing them to banks for a long period of time, and it’s just not fair and it’s not necessary,” he said.

The Republican-led House passed a bill that would tie student loan rates to the rate of a 10-year government Treasury bill, plus a premium. That would prevent rates from doubling right away, but that does mean they would fluctuate with the market, with a cap.  Supporters of that approach say it that would get the government out of the rate-setting business, and, ironically, that it would actually help with college costs.

“As long as we feed cheap, free money to students, there’s no control on colleges from raising tuition because students can still go out and get the loan money,” said Kirby Wilbur, chairman of the state Republican Party.

Wilbur believes part of the solution is holding the line on tuition, something the Legislature just agreed to in Washington for the next two years.

“The rate of interest may go up, but tuition is going to be kept down.” Wilbur said. “In the long run they may save some money because of that, compared to students in other states where tuition keeps going up.”

Because most students won’t be taking out new loans until college starts this fall, Congress does have time to act in the next month or so before the financial hit is fully felt.

BOTHELL — Student loan rates for millions across the country are set to double on July 1 unless lawmakers in Congress act. They were initially lowered when the recession started to help families as the economy tanked.

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Rep. Suzan DelBene, D-Wash., wants to extend the current student loan interest rates for two years.

Right now, the rate on a typical subsidized student loan is 3.4%.  That is set to go to 6.8% on July 1.

Washington Congresswoman Suzan DelBene is sponsoring a bill to extend the rate at its current level for two more years, giving Congress time to create a long-term higher education funding plan. She held a discussion Thursday with students at the UW Bothell campus.

“Interest rates doubling would be devastating, and many of these students wouldn’t be able to continue their education,” DelBene said.

“I’m terrified,” said freshman Victoria Frawert, who attended the event.  “I really don’t know whether I’ll be able to afford it.”

Frawert said she and her siblings are already stretched just keeping up with the current costs of education.

“We’re supposed to be focusing on our studies, and we’re supposed to be worrying about our actual higher education,” Frawert said.  “But instead we have all of these stressors coming in from economics.”

Republicans argue that DelBene’s two-year proposal would cost the government more than $8 billion.  Last week, the House passed a plan that would peg student loan rates to the 10-year Treasury note, plus 2.5%.  The plan would also cap the rate at 8.5%, giving students and families some protection if rates spike in the future.

Supporters of the plan argue it would cut the deficit by $3.7 billion over 10 years.

On Friday, President Obama will be hosting an event at the White House with students, arguing for a plan to limit rate increases in the future.

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