Jun 28 2013

College Student Loan Rates Could Double July 1

Federal college student loan rates will rise from 3.4% to 6.8% Monday if the U.S. Congress does not find a solution

Rapidly rising  college costs and student loan repayment defaults have failed to motivate a congressional solution over the past year as the July 1 end of the current rate was anticipated.   Federal student loan default rates reached an all time high in 2011, according to the U.S. Department of Education.  Defaults by borrowers in their first two years of repayment were at 9.1 percent in fiscal year 2011.

“Student Loans Rates Likely to Double Monday” from 3.4% to 6.8% despite competing proposals to avoid the increase, U.S. News & World Report predicted Thursday. Senator Elizabeth Warren introduced a bill that would set student loans at the Federal Reserve discount rate, currently 0.75% for just one year.  This is the rate banks pay to borrow funds from the federal Reserve.

A bipartisan coalition of senators offered a compromise solution Wednesday afternoon.  Under their proposal,  undergraduates would pay a loan rate 1.85 percent above the 10-year Treasury rate, while graduate students would pay 3.4 percent above the 10-year Treasury rate.  Parents of students would pay 4.4 percent above the 10-year Treasury rate for PLUS loans to cover college costs. The rates for new loans would reset every year depending on the yield on the 10-year Treasury note, but students would pay the same rate over the life of the loan.

Read SF Gate on Student Loan Rates

Read Mercury News on Student Loan Rates

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