Proposed Student Loan Interest Rate Hike Has Trickle Down Effect

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Speaker John Boehner says the House will vote Friday on a Republican bill preventing interest rates on federal student loans from doubling this summer.

But the legislation will be paid for by cutting money from President Barack Obama's health care overhaul law.

The interest rate is scheduled to double on July 1 from 3.4
percent to 6.8 percent on subsidized Stafford loans unless Congress
acts.

About 7 million undergraduates would be affected, raising
costs by an average of $1,000 each, according to the White House.

UNL Director of Scholarships and Financial Aid Craig Munier says the average student graduates with $19,912 in debt after they graduate.

That amount is far less than the national average. US Bank Senior Financial Analyst Doug Carlo says the average student loan debt is $34,000. He also says 27% of people with student loans default.

Carlo says the trickle down effect is real and the student loan debt problem has the potential to snowball. He says debt has to be paid for, whether the person repays the government or private company or taxpayers foot the bill. Carlo says there's also the potential for it to get passed on to the next generations, or get added to the growing national debt.

He says if defaulted student loans are added onto the national debt, it could create problems in the stock market as investors become weary and pull money out.

Carlo says these are possibilities, but he believes it won't get this far and Congress will act.

U.S. student loan debt has surpassed credit card and auto-loan debt, with some estimates putting it at $1 trillion. This debt jeopardizes the fragile recovery and increases the burden on taxpayers. About two-thirds of student loan debt is held by people under 30, according to the New York Fed.

Students issued loans before July 1 won't be hit with the higher rate. It also doesn't affect the interest rates on unsubsidized Stafford loans (now at 6.8 percent) and PLUS loans for parents (now at 7.9 percent). Unlike subsidized Stafford loans, unsubsidized Stafford loans are not based on financial need.

The bills being debated in Congress would be paid for in completely different ways. Senate Democrats have introduced a bill that would do so, and would cover the $5.9 billion price tag by raising payroll taxes on the upscale owners of some privately owned corporations.

Boehner is trying to turn the tables on Democrats by scheduling Friday's vote, but paying for the measure in a way Republicans
prefer.


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