The interest rate on new subsidized Stafford loans is almost certainly going to double on Monday.
Congress starts a weeklong recess today, and although lawmakers on both sides of the aisle wanted to avoid the rate hike, they failed to reach a compromise in time.
Rates will double from 3.4 percent to 6.8 percent. Subsidized Stafford loans are the only type of loan impacted, and the increase will apply to new loans, not existing ones. That means that if you're going to be a junior in college, rates on any subsidized Stafford loans you took out during your freshman and sophomore years won't change.
The average subsidized loan amount is about $3,400 per year. A Joint Economic Committee brief from Sen. Amy Klobuchar (D-Minn.) says that at the new interest rate, students will pay an average of about $1,250 more in interest over the 10-year life of an average loan.
Don't take those numbers as a given, though. Not all loans are for the same amount, and a 10-year repayment plan is just the shortest of several options for borrowers. The less time it takes you to pay off a loan, the less interest you will have to pay.
This might all sound dire, but here's some potentially good news: If Congress reaches an agreement in the future, they can make it retroactive, meaning the increase could be reversible. Whether lawmakers can work together to find a solution both sides are willing to live with remains to be seen, however.
The Republican-controlled House passed a plan earlier that President Obama threatened to veto because it didn't lock in interest rates over the life of each loan. He's proposed closing tax loopholes to offset the cost of keeping interest rates the same, but Speaker John Boehner (R-Ohio) opposes that idea. He blasted Senate Democrats in a Friday release for failing to compromise.
"[R]ather than take up a bipartisan solution supported by President Obama and House Republicans, Senate Democrats are going to go ahead and let student loan interest rates double on Monday," Boehner stated. "Democrats went from crowing about a 'political boon' to saying 'let's put this off for a year.'"
The White House and Democrats countered that the plan would hurt the most vulnerable students. At this point, they'd like to pass a one-year extension of the 3.4 percent rate and reexamine the issue next year when they are set to consider the Higher Education Act, which governs federal student aid programs.
If the extension sounds familiar, it's because they passed a similar short-term measure last year, too. Sen. Debbie Stabenow (D-Mich.) told the Washington Post that the Senate will likely vote July 10 on whether to consider a bill that would keep the rate at 3.4 percent for a year, retroactive to Monday's increase.
Whether Republicans will be receptive to such a bill is another matter. They have so far opposed closing tax loopholes and spent most of their time blaming Democrats for failing to take up the House bill they passed earlier.
While Congress can still take action after the July 1 increase, they're going to have to reach a compromise to halt the rate hike. Students and those supporting them won't see any improvements until that happens.