How Much Will It Matter If Student Loan Interest Rates Double?


The bell has been rung in the next round in the fight over student loan interest rates, and borrowers could take it on the chin this time. On July 1, if Congress does nothing, the interest rate on federal subsidized Stafford student loans will double from 3.4% to 6.8%.

“It’s not the end of the economy as we know it,” says Mark Kantrowitz, publisher of student-lending websites and He’s right, but that doesn’t mean it won’t really stink, especially for the poorest college students.

Advocacy group U.S. PIRG says it could cost students an extra $1,000 over the life of their loan if the interest rate on those loans goes up to 6.8% in July. In reality, it might be more: Some students wind up paying off their loans for upwards of 20 years, and that $1,000 is calculated based on the average one-year loan amount borrowers take out, which is $3,357. But the average bachelor’s degree recipient who graduates with debt graduates with $11,329 in subsidized Stafford loan debt.

Still, as Kantrowitz points out, that’s only a little more than $20 a month. So, for most borrowers, this probably still wouldn’t make much of a difference. The rub is that these subsidized Stafford loans are widely used by lower-income families. In the 2007-2008 academic year, about half of bachelor’s degree recipients who graduated with student loan debt had a subsidized Stafford loan.

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