Student Loan Interest Rates May Double in July

My children are many years away from starting their college days. My oldest won’t even start kindergarten until fall 2013, so the latest debate in Congress about student loan interest rates doesn’t affect me as a parent. But it’s sure to have an impact on many Cockeysville parents and young adults.

According to a story in the Washington Post, seven million borrowers could see the interest rate on their federally subsidized Stafford loans double to 6.8 percent in July, if legislation enacted in 2007 is allowed to expire. The story in the Post also says that the Obama administration is urging Congress to act to prevent the increase, which, citing Education Secretary Arne Duncan, “would add $1,000 a year to the repayment cost of the average loan.”

Of course, party politics in an election year are clouding the argument. As the Post put it, “Five years ago, the measure passed with bipartisan support. This spring, the legislature is divided along party lines. Republican leaders accused the president of amplifying that division because it is an election year.”

No matter where you land on the political map, if you are one of the millions staring down the potential rate increase, letting the protective measure expire won’t seem like a good idea. With the current unemployment rate, and with many of those who are employed being underemployed, the prospect of paying out more interest for student loans is daunting. In some households, I can even imagine both parents and young adult children facing the same problem because many out-of-work people are turning to graduate school to improve their chances of landing a higher-paying job.

I’m still paying off my student loans – I’ve been out of college for 15 years now, but the interest rate on my smallish loan remains lower than other bills we should pay off first. I was fortunate enough to have parents who were able to largely pay for my undergraduate education, with my help in the form of scholarships and whatever I could contribute from summer jobs and federal work-study positions during the school year. So my student loan debt hasn’t held me back from buying a home and starting my family – not the case for many graduates today, according to another story in the Wall Street Journal.

The reports make me realize that even though my kids are still very young, we need to start planning for their future. What have you done to plan for you children’s education? Have you opened 529 plan account to set money aside for college? Are your children older and trying to manage student loan payments on a starter salary? Are you still paying off your own college loans? Tell us in the comments.