Congress has finally agreed on legislation to keep interest rates on federal student loans from doubling to 6.8 percent this school year. The Senate passed a compromise bill last week that ties federal student loan rates to the yield on 10-year Treasury notes. That means undergraduates will pay an interest rate of 3.86 percent on loans taken out this year; grad students will pay 5.41 percent.
These interest rates will increase as the economy improves, but the legislation caps interest rates for undergrads at 8.25 percent.
Keeping interest rates on student loans from rising won't do much to make a college education affordable. In fact, it may make it worse, some conservatives argue. Some believe that the federal government is contributing to the rapid increase in college tuition.
Student loan debt accounts for 36 percent of Americans' total non-housing debt, a bigger share than auto loans or credit card debt.
According to the College Board, it cost an average of $22,261 for students to attend an in-state public college last year; the "moderate" budget for a private college averaged $43,289. With prices like that, it's no wonder student loan debt is exploding. And it's no wonder that politicians vow to do something about it.
In his economic speech last week, President Barack Obama promised to "lay out an aggressive strategy to shake up the system, tackle rising costs, and improve value for middle-class students and their families. It is critical that we make sure that college is affordable for every single American who’s willing to work for it."
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