Millions of consumers across the country are now dealing with massive student loan debts that put a strain on their financial stability, and those burdens could soon grow larger if lawmakers don’t act.
Interest rates on student loans issued by the federal government are set to double to 6.8 percent from the current 3.4 percent on July 1 unless those in the U.S. Congress vote to extend the lower levels, according to a report from Inside Higher Ed. There was a threat that this might happen last year, but an extension of the 3.4 percent rate was pushed through Congress when it started to become a political issue last summer; experts say that keeping rates low cost the federal government some $6 billion.
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With no election cycle looming this time, lawmakers who may not want to cut that much out of the federal budget to keep rates low again might not have the same incentive to bite the bullet, the report said. Instead, it seems that lawmakers may be more interested in overhauling the entire financial aid system. A recent hearing of the U.S. House Committee on Education and the Workforce recently heard testimony from a number of experts representing organizations that received federal grants to rebuild how federal financial aid works from the ground up.
One of the suggestions, put forth by the director of the Federal Education Budget Project at the New America Foundation, would tie the interest rate on student loans to the 10-year Treasury borrowing rate, by making it the baseline, then adding three percentage points to it, the report said. Another, from the president of the National Association of Student Financial Aid Administrators, would change the rate from one year to the next based on a number of financial consideratiosn, which seemed to draw interest from Republican lawmakers in general.
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Today, the average college student leaves school with tens of thousands of dollars in debt. In addition to sizable student loan balances, they also likely have credit card debt and auto loans in their names, and may find it more difficult to gain real financial independence soon after they graduate, particularly when those education loan bills start to come due.