Your interest rates for subsidized Direct student loans could increase this year. In 2008, a law was enacted to temporarily reduce interest rates on these loans from 6.8% to 3.4%. However, on July 1st, this bill is set to expire. Without further action from the government, increased interest rates could end up creating thousands of dollars in additional payments for students—particularly students in great financial need.
To understand the issue at hand, one needs to better understand how student loan interest rates function today. With the Direct loan (also commonly referred to as the Stafford loan), all dependent students in pursuit of an undergraduate degree may obtain $5,500 during their freshman year, $6,500 during their sophomore year, and $7,500 in each of their junior and senior years.
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There are two types of Direct loans: the subsidized and the unsubsidized.
Subsidized Direct loans have two distinct advantages over the unsubsidized rates:
Unsubsidized Direct loans, on the other hand, do not have these benefits. Instead, they have two distinct disadvantages:
Students who have demonstrated need—based on the federal methodology—are able to obtain the more attractive loan, the subsidized Direct loan. However, if Congress and the President do not come to an agreement by July 1, 2013, all Direct loans will be subject to unsubsidized rates—theoretically removing the subsidized component from the Direct loan.
Ultimately, it is time to govern! For young adults trying to make their way in life, student debt is a huge challenge. These young adults do not need this already incredibly challenging element of the college process to be made even more difficult by this political battle. If you agree, there’s plenty of opportunity to get involved. Call your congressperson and tell them simply: solve this student loan interest rate crisis, and solve it now!
To learn more about your loan options and how you can avoid taking on excessive debt, check out Right College, Right Price in the College Countdown Bookstore.