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Hey, whatever happened with student loan interest rates?


For many students about to begin their college careers, it was a nail biter. Would interest rates double on some student loans? As a student yourself, you may have noticed headlines on this issue and wondered what was going on and how it might affect your own college plans. Here is the high-level view of what happened, and where things stand now.

The background

For subsidized loans taken out by undergraduate students, the interest rate was scheduled on July 1, 2012 to automatically reset from 3.4% to 6.8%. Both political parties were in favor of keeping the rate at 3.4%. However, after extensive discussion, there had been no political agreement as to how the federal government would pay to keep the lower interest rate. As the July 1 deadline approached, tensions rose.

What happened

On June 29, Congress passed The Temporary Surface Transportation Extension Act of 2012 (H.R. 4348). This action revised the Higher Education Act, extending the 3.4% rate for undergraduate, subsidized loans for one year and also limiting the time period in which certain new borrowers may receive an interest subsidy while in-school. With the president's signature, the issue is resolved, at least for the short term.

What’s next

This legislative action will save student borrowers some money, but it only resolves the issue in the short term. Experts think there will be similar political debates next year since the recent action only extends to one year. There’s more to come on this issue, so stay tuned!