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3 On Your Side: Interest Rates Double For Subsidized Stafford Loans

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By Jim Donovan

PHILADELPHIA (CBS) – There are new financial aid worries today for college students. Those who plan on taking out new loans for the fall term may see interest rates twice what they were in the spring. But the key word is “may.” As 3 On Your Side Consumer Reporter Jim Donovan tells us, a deadline missed by Congress has some students worried.

As Congress takes the week off for the 4th of July holiday, seven million college students are left in limbo. That’s after the interest rate on Subsidized Stafford Loans doubled on Monday from 3.4 percent to 6. 8 percent. Subsidized Stafford Loans are limited to students with lower incomes, and the interest rate is set by Congress.

The rate hike affects roughly a quarter of all federal borrowers and could end up costing students on average an extra $2,600 when they least likely can afford it. College student Ryan Morgan says, “I definitely think that doubling the rate to 6.8% would definitely increase default rates, because again, the students who are receiving the subsidized loans are from the lowest income brackets.”

The interest rate hike only applies to new Stafford loans, not to existing Stafford loans, and though the rates have doubled, Congress can retroactively lower the rate hike as soon as they return from the holiday break. Kalman Chany, author of “Paying For College Without Going Broke,” says, “I think there’s going be some kind of compromise, some kind of adjustment. I don’t know if they’re going to a variable rate loan. My guess is they may just kick the can down the road and say we’ll just do this for one year, and we’ll revisit it another year later.”

If there is a silver lining here, it’s the fact that relatively few borrowers take out student loans in July and early August. In most cases, the loans can’t be taken any earlier than 10 days before the term starts. That is little consolation, however, for students taking summer classes, but we’ll keep you posted on any changes.

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