Obama Urges Congress to Prevent Student Loan Rate Increase

Federal student loan interest rates are set to double by July 1 if Congress doesn't act.
7:36 | 05/31/13

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Transcript for Obama Urges Congress to Prevent Student Loan Rate Increase
Classes may be over for most college kids but they're still concerns about the cost of their education. Today some students did with President Obama as he warned that the cost of student loans is about to go up and may even double. Unless congress to act quickly. If congress doesn't act by July 1. Federal student loan rates are set to double. And that means that the average student -- -- -- loans will rack up an additional 1000 dollars in debt. That's like thousand dollar tax -- I assume most of you cannot afford that now this sounds like deja Vu all over again that's because -- is we went through this last summer. -- -- -- -- One is hot. I don't think we did this event outside. But we went through this and eventually congress -- all the parents and young people who said don't double my right. And because folks made their voices heard congress acted to keep interest rates low but they only did for year and that year's almost up. -- right right now to bring in -- -- -- from Yahoo! finance to help us break down what the outcomes can be for families Lauren hello. I I think for having me -- the president today urged. Congress to pass his proposal. Congress did pass the bill last week the president doesn't like it so what does the presidents do and -- we have coming from congress. That what the president's bill that they're actually not that it's similar they both want to get these rates on sent that I. Stafford loans -- one particular type of college and they want to get them more closely -- and market rates right now congress that these -- So they want to get hot IQ borrowing costs and the US government -- they have that ten year treasury note in Obama's case plus a percentage point about that. For these lines now the Republicans want basically -- same thing that ten year treasury rate. But -- -- different amount 2.5 percent so little bit more there are some key differences Obama wants that rates that for the life of the loan. Republicans the plan that passed last week that would fluctuate based on changes in rates. And there's a little bit of a difference in terms caps those -- Obama's plan did not cap the interest rate how high acting out. The Republican plan -- for these subsidized Stafford lines it would be capped it eight point 5%. That doesn't make -- difference says Republicans did -- there plant last week it went through the house. Obama has that he would veto -- house there's -- hit. Student loan rates are set at 3.4 percent but. After July 1 with existing college loans the effect in other words you've already at 3.4 percent and your payments eloped after July 1. You know that's a really good question -- from what I understand what impact new borrowers about 25%. Of the borrowers next year expected to be these -- have sent that I heard once that it would impact and -- -- would be. Six point 8% as opposed to that 3.4 percent. For perspective that I should tell you it -- 25% of borrowers the other three porters are so. -- other types of student loans they have I -- rate six point 8% seven point 9% already so. Monday's cents at once -- -- the immediate our -- they have the lower rates they're sad that I and neither the lines that it impacts. Aren't you talked about the difference between the plans about fluctuating rates from Republicans and the more -- -- -- Democrats which steel is better for students overall. You know I hate to tie it at and could be tricky but I would have to say may -- neither because. One of the criticisms that we're hearing that makes a lot of -- -- it -- doesn't address the broader problem which is that. College -- had been writing a rate three times that inflation since the 1970s. Students two thirds of them borrow to finance those two -- cost average -- conservative averages put those. Average aren't caught that 23000. Dollars per student and all of this issue of the rate increase is important eight impacts. One small portion of our -- what about the broader population of student. Students and student loan bar is -- to finance these -- It birdies at the leading college costs this is the bigger issue and it's not addressed by addressing this one. -- change for this one small portion. -- college -- it gets a lot of attention and is an important issue but it is one small part of a much broader problem. For the people -- in this -- upset that no matter what happens here it looks like those rates are going up because neither the president. Nor congress are saying let's leave 3.4 percent in fact they both agree that's -- -- why is that. Well actually sit there with a little bit trickier -- -- the Republican plan which. It shouldn't be talking about it at the White House -- it would be at that plant say it goes through. For the sense that I Stafford -- their rates would go up to about 4%. Because you -- that ten year treasury let's 2.5 percent. It would actually kind hunt for other bars because it's that same formula that -- -- -- appliances other bars at six point eight. Seven point 9% three would come down under the president's plan -- -- that ten year treasury to slightly lower rates -- would stay about the same. Floor. Seven that I Stafford loan bars and -- -- Giffords is what happens with interest rates in the future so. If we look at where interest rates were in 2008 we use that as a -- for where they could be sent gable or not -- this ultra. Low interest rate environment those -- -- that we're talking about it would be the interest -- that. By half percent or -- -- that percent Sid. The wild card is what happens with interest rates over the longer term and how it is how would it impact. These bar it it has broader question how should interest rates beset while the government that the lending should they be set arbitrarily by congress that seems a bit on in -- -- out of step at a time. When you have these ultra low interest -- that people are able to borrow. In the broader economy but students aren't benefiting for front and they're still stuck at these higher rate that we're set by congress. But -- human interest rates are higher you have this problem where -- and students -- gonna eat -- need to pay more for loans that it probably can't afford to present. And said this morning the average student loan amount after graduating is 28000. Dollars how does that impact our economy obviously you're graduating with how much money you you're not going to be doing things. But buying a house or car. Exactly so this is one of the concerns for the broader economy from a macroeconomic perspective is what impact does this have on its entire generation in terms delaying. He -- keep purchases that have been a major part of the US economy buying house. Buying a car. Spending money on on either think that typically would be spending on and say your -- needs. Or -- your older because we see more students who go back. To school to get more scales to try and be viable in this economy in terms of employment and jobs. So all of those purchases arguably being put -- as student loan debt needs to be paid down and is there is -- or something that people are. -- needing to focus on so that's one of the key concerns it is the impact that this could have on the broader economy not to mention a generation and Milan meals who are taking on all of this debt with the promise of a brighter future -- -- college education paving the way -- -- at a time when and unemployment market is typical unemployment is Allen dated for everyone but particularly for younger adults and so this kind of promise of what you get with a college education. Isn't working out in every case the way that perhaps people were expecting. -- -- it's a scary scenario alarmist I want to thank you so much for joining us from Yahoo! finance.

This transcript has been automatically generated and may not be 100% accurate.

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