Key federal student loan rate doubles

The interest rate on a key federal student loan doubled Monday, as expected, but it is unclear whether Congress will allow the increase to stand before the new school year gets under way.

Federal law has set the rate for new subsidized Stafford loans at 6.8 percent, up from 3.4 percent. The subsidy means that these loans, for undergraduates with demonstrated financial need, do not accrue interest while the students are in school. It is estimated that the rate hike would add about $1,000 in interest over the life of a loan for many borrowers.

Subsidized loans taken out before Monday are not affected. Nor are other federal loans to undergraduates, graduate students and parents.

More than 7 million students are projected to take out subsidized loans for the coming school year.

Lawmakers and President Obama sought to prevent the rate hike but were unable to reach an accord before Congress left Washington for its July 4 recess. The Republican-led House passed a bill in May to tie loan rates to the government’s cost of borrowing, but the administration criticized some of the provisions and threatened a veto. The Democratic-led Senate stalemated.

Like congressional Republicans and some Democrats, Obama has proposed tying loan rates to annual market benchmarks instead of the current practice, in which Congress fixes rates. But lawmakers have been unable to agree on the details of such a switch, such as rate caps and annual rate variability for individual loans.

Many congressional Democrats want to extend the fixed 3.4 percent rate for a year, echoing a measure enacted a year ago. The Senate is expected to vote July 10 on whether to take up such a bill, which would be retroactive to Monday. It is likely to face a Republican filibuster.

Experts say that Congress still has time to act before the rate hike ripples through the higher education system. But if Congress adjourns for its August recess without passing a bill, the impact on students will be significant.

Nick Anderson covers higher education for The Washington Post. He has been a writer and editor at The Post since 2005.

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