There has been much discussion in recent months about the coming increase in interest rates on federal student loans, and lawmakers’ attempts to keep that jump from happening have largely stalled.
Last week, two more attempts on the part of Republicans and Democrats in the U.S. Senate to freeze the interest rates on federally-issued student loans were stalled because lawmakers could not hit the 60-vote threshold that guaranteed the bills would pass, according to a report from the Washington Post. These problems are being caused because the two parties have been unable to agree on how to pay for the additional $6 billion loan subsidies that would accompany the rate freeze.
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Leaders on both sides of the aisle would prefer to extend the current student loan interest rates for at least the next year, but there has — perhaps not surprisingly — been a considerable amount of disagreement over how to do it, the report said. This comes even as President Barack Obama and frontrunner for the GOP presidential nominee Mitt Romney have both said that the rate needs to remain at its current level.
Democrats want to pay for the freeze — which would only last for a year — by ending a tax provision that allows some small business executives to collect their income as profits instead of wages, which helps them avoid payroll taxes, the report said. Meanwhile, Republicans want to subsidize the rate freeze by eliminating a fund to pay for preventative healthcare. The Democrat plan failed to pass thanks to a 51-43 vote, and the Republican proposal was overwhelmingly voted down 34-62.
If a bill cannot be passed to extend the current federal student loan interest rate of 3.4 percent, then it will double to 6.8 percent on July 1, and all loans taken out after that point will be more costly for students, the report said. However, federally-issued student loans that existed prior to July 1 would not have the higher rate applied.
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These days, the average college student seeking a four-year degree owes tens of thousands of dollars on their student loans, which can make it difficult for many to achieve financial independence soon after graduation. Often, federal student loans aren’t enough to subsidize their education, and borrowers also have to seek money from private lenders as well.
Image: Sean Rakin, via Flickr