Subsidized Stafford Loan Rates Double, Congress May Restore Lower Rate Retroactively

The U.S. Congress failed to reach a compromise to head off a doubling of interest rates on subsidized Stafford loans, but some lawmakers vow to retroactively restore lower student loan interest rates.

Although the U.S. House of Representatives passed legislation to address the student loan interest rate change, the U.S. Senate failed to reach agreement on a measure to prevent subsidized loan rates from doubling to 6.8 percent, from the previous rate of 3.4 percent, effective July 1.

A last-minute compromise proposed by a bipartisan group of U.S. senators failed to gain the support of the majority Democrats because the proposal lacked a cap on the maximum interest rate. Senate Democratic leaders now are vowing to push legislation to retroactively extend the 3.4 percent interest rate when lawmakers return following their Fourth of July recess.

A borrower with $10,000 in subsidized Stafford loans would pay approximately $17 more per month and approximately $2,000 more in total interest over a 10-year standard repayment schedule, based on a 6.8 percent fixed interest rate, as compared with a 3.4 percent rate.

Subsidized Stafford loans were projected to account for nearly $29 billion of the $134 billion in federal student loans to be issued under Title IV of the Higher Education Act this fiscal year.

The 3.4 percent subsidized Stafford loan rate originally was enacted as part of the College Cost Reduction and Access Act of 2007. Under that law, the lower rate was to be in effect for only a single year, 2011-2012. Congress extended the 3.4 percent rate for the 2012-2013 academic year.