Interest rate set to double on popular student loans

The cost of a college education keeps going up and it could take another big jump this summer. That's when the interest rate on new Stafford Loans is scheduled to double.

A lot of families simply can't afford the cost of college without some financial help. The typical college student in the country already graduates with about $26,000 dollars in debt.

And that could go up even more if the interest rate on those popular government-subsidized loans double as is planned. The rate on Stafford loans is set to jump from 3.4 to 6.8 percent only July 1, unless Congress acts to stop it. And there's no guarantee it will.

Student groups and college educators across the country have called on Congress to stop the rate hike, which would affect more than 7 million students each year.

The consumer advocacy group U.S.PIRG estimates that doubling the interest rate on Stafford loans would add another $1,000 to the cost of each loan - and many students need one loan for each year of school.

As you might expect, Congress remains divided on this issue along political lines. Republicans think the rate should go up, Democrats don't.

The Senate budget resolution, authored by Sen. Patty Murray (d-wash.) would keep the interest at 3.4 percent.

"The cost of a college education has never been higher, and students across our country can't afford higher interest rates for Stafford loans," Sen. Murray told us.

Republicans in the House are talking about a long-term solution that would change the way the interest rates on Stafford loans are calculated.

One idea being discussed is to replace the fixed rate arbitrarily set by Congress with a variable rate tied to some market indicator, such as treasury notes. Some educators like that idea.

And that's what President Obama proposed in his budget plan released today, but because those rates would not be capped under the President's proposal, consumer groups are not happy with it.

More Information: Interest on government student loans set to double this summer

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.