Starting law school in the fall and thinking about using federal Stafford loans to pay for some of it? You may be in for a bit of a shock.
Starting July 1, 2012, the interest rate for subsidized Stafford loans is set to double--from 3.4% to 6.8%.
A little back story: In 2007, Congress passed the College Cost Reduction and Access Act, which gradually cut interest rates on subsidized Stafford loans from 6.8% to 3.4%. This reduction, however, wasn't permanent--it had an expiration date. And its last day is June 30, 2012.
All students getting subsidized Stafford loans after June 30 will be subject to the increased interest rate (students getting unsubsidized Stafford loans, however, will see no change--their rates will remain the 6.8% they have always been). This, of course, has come as quite a shock to those looking to these loans to help them with tuition costs, who were banking on the reduced Stafford interest amounts.
In an effort to extend the reduced rate for at least one more year, two bills have been introduced: One by Senator Harry Reid (D-Nevada), and one by Congresswoman Judy Biggert (R-Illinois). If either of these bills is passed into law, the 3.4% interest rate on subsidized Stafford loans will be extended for one more year.
President Obama has been touring college campuses--University of North Carolina in Chapel Hill, University of Colorado--Boulder, and University of Iowa--in the last week, speaking to students about the potential increase and what the government is seeking to do about it. The President also appeared on "Late Night with Jimmy Fallon" during his UNC Chapel Hill visit to discuss it, including joining the comedian for a rendition of his popular Slow Jam the News segment (see video below).
As with all Finance Friday news, we'll keep an eye on this, and let you know of any new developments.