Student Loans: The Truth About the Interest Rate Hike

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On July 1, the interest rate on federal subsidized Stafford Loans doubled 3.4 percent to 6.8 percent. Back in 2007, Congress passed a law that allowed student loan interest rates to progressively drop from the original 6.8 percent to 3.4 percent over the course of five years. In 2012, it was time to decide what would happen to the interest rates, but Congress couldn’t come to an agreement. Lawmakers passed an extension to maintain the 3.4 percent interest rate for one year. That year now expired and a solution wasn’t reached.

Legislators still could potentially pass a bill to reverse the hike.

Note: This increase only affects subsidized Stafford Loans issued on or after July 1, 2013. The 3.4 percent rate is locked in for all loans issued prior to July 1.

Cecillia Barr of Debt.org explains what this interest rate hike means for students and parents dealing with student loans. Read on to make sure you understand what type of loan you have and how to pay it back.

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