Student Loan Interest Rates and “College Affordability’

After months of debate, fighting, compromise, and what appear to be thousands of news stories, the federal government’s student loan interest rate fiasco is finally over.

On Friday President Barack Obama signed into law a measure to prevent the interest rate on subsidized student loans from automatically doubling to 6.8 percent. According to the Washington Post:

Obama signed… a measure restoring lower interest rates for student loans, pledging the hard-fought compromise would be just the first step in a broader, concerted fight to rein in the costs of a college education.

Encircled by lawmakers from both parties in the Oval Office, Obama praised Democrats and Republicans alike for agreeing — finally — on what he called a sensible, reasonable approach to student loans even as he cautioned that “our job is not done.”

Yea, actually the job hasn’t even started yet. As a result of this “deal,” according the the Post:

Undergraduates this fall will borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last.

So many undergraduates will actually pay half a percent more in interest on their government-issued student loans than students who took out loans the year before. Since the compromise ties the interest rates to the market, improvements in the economy would cause rates to increase even more.

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer