Student Loan Interest Rates Double While Congress Takes a Vacation

Today (Monday) federally subsidized Stafford student loan interest rates doubled from 3.4% to 6.8% after Congress failed to reach a deal to maintain lower rates by the July 1st deadline.

Monday also marks the beginning of the Independence Day congressional recess, sparking outrage among student advocates as Congress goes on recess without resolving this important issue.

Congress could retroactively "fix" the damage done by the soaring rate increase, but so far no deal is in sight.

The House has already passed a student loan proposal, but the Senate remains divided.

Particularly, Senate Democrats are divided amongst themselves over two different plans, and cannot yet present a strong front on the issue.

Sens. Kay Hagan (D-NC) and Jack Reed (D-RI) have a plan that would extend the 3.4% rate for another year, while also retroactively reducing the rate.

But a bipartisan group of Senators has a different, more long-term solution. They want to permanently tie student loan interest rates to the 10-year Treasury note borrowing rate.

The plan would reduce the deficit by $1 billion over 10 years, according to the Congressional Budget Office. It's being sponsored by Sens. Lamar Alexander (R-TN), Richard Burr, (R-NC), Tom Coburn, (R-OK), Joe Manchin, (D-WV), Angus King (I-ME), and Thomas Carper, (D-DE).

Many Democratic senators dislike the idea of trying to "balance the budget on the backs of students."

However, the primary source of dissention among the ranks to the latter plan is that it sets no cap on how high student loan interest rates can go.

If student loan interest rates are tied to the economy, and the economy picks up, the rates could become extraordinarily high.

The yield on the 10-year Treasury note has already jumped from 1.6% to 2.49% since May, amid Federal Reserve Chairman Ben Bernanke's indication that he may begin to slow down the Fed's bond buying program.

Student debt in this country has already surpassed separately the country's auto loans and consumer credit card debt.

Further increases in student debt loans spell disaster for the US economy; find out why the Student Loan Bubble is the Next Subprime here...

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