student loan debate

Nobody Should Care if Student Loan Interest Rates Double

It’s deja vu all over again. I feel like I’m watching a terrible rerun of last summer.

Unless Congress acts in the next few days, federal subsidized student loan interest rates double from 3.4 percent to 6.8 percent on July 1.

And like last summer, this debate doesn’t matter.

Yeah, but I have subsidized loans!

You may be one of the 7 million students who borrow federal subsidized loans every year. And subsidized loans are a beautiful thing. If you demonstrate enough financial need and qualify for a subsidized loan, the government will pay for any interest that accrues while you’re in college. That’s a sweet deal.

So for all of the subsidized loan borrowers out there, you’ve got good news: If you’ve already received a subsidized loan, you won’t be affected by Congress’ next move. Only subsidized loans issued after June 30, 2013 would be impacted by the rate hike (and only for undergraduate students).

But you may be looking to borrow after the July 1 deadline. And I’m sure just hearing that your loan’s interest rates could double might send you into a panic.

I mean, doubling an interest rate on a loan is pretty a big deal, right?

Not really.

But if student loan interest rates double, won’t I being paying a ton more?

student loan interest rates double

Sure, if interest rates double, it means the total that you end up paying over the lifetime of your subsidized loans will increase. That’s easy math. But your total debt won’t go up by as much you think.

According to The Institute for College Access and Success (TICAS), increasing the interest rate to 6.8% would cost borrowers an extra $4,000 over the lifetime of their loans (that’s under a standard 10-year repayment plan and assumes that you’re borrowing the maximum in federal subsidized loans each year).

$4,000 across 10 years… that’s $400 a year… that’s $33.33 a month.

$33.33 a month? That’s what the big fuss is all about? That’s a meal out. That’s a pair of jeans. That’s what I spend on a weekend shopping spree at Goodwill.

I’m a frugal lady. I know that ever dollar matters, and paying an extra $33.33 a month could be a major blow to someone’s budget.

But in the grand sceme of things, Congress should not be focusing on legislation that would only save students $33.33 a month. We’ve got bigger fish to fry. Thousand dollar fish.

This is the wrong debate to be having in Congress.

The debate over whether or not to let student loan interest rates double is a bandaid larger issue.

Instead of supporting student borrowing with lower interest rates, how do we help students borrow less?

Let’s have a real conversation about college affordability. We need to talk about real solutions to help families make the most appropriate and affordable decision around post-secondary education. We need to talk about providing enough need-based grants to families that need it most. We need to talk about holding more colleges and universities accountable for student loan default rates, student loan debt loads and increasing tuition prices.

Those are the kinds of issues that could save a student borrower tens of thousands of dollars.

And until someone is ready to have a broader conversation about these bigger issues, I’m not going to listen to the debate in Congress over a measly $33.33 a month.

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6 thoughts on “Nobody Should Care if Student Loan Interest Rates Double

  1. Money Beagle

    Many large schools are sitting on endowments in the billions of dollars. Harvard has a 30 billion dollar endowment. Yet, these same schools are passing along tuition increases year after year way above inflationary levels. I think publicly supported institutions that have these absurd levels of endowments should have tuition increases capped.

    1. Stephanie Halligan Post author

      30 billion with a b?? That’s a tough stat to swallow. There’s definitely an education bubble that’s about to burst… but for now, it’s sad to be distracted by what seems like a bandaid over the larger issue.

  2. Debt Blag


    Here would be my issue: having $30,000 of 3.4% debt shouldn’t keep anyone from starting to do all sorts of grown-up money things like starting a big emergency fund or a retirement account — especially when you factor in the tax deduction on student loans. On the other hand, having 6.8% debt would definitely make me think twice about doing both or either of those things until the debt was paid off.

    1. Stephanie Halligan Post author

      Interesting perspective. Personally, I’m not sure it would’ve made a difference to me (18-year-old me) about the interest rate. If I was looking for a way to borrow money and I qualified for federal loans, I wouldn’t really blink at 6.8% vs. 3.4%.

  3. Matthew Riley

    My student loans have been at just over 6% and one over 12% for years. I wish I had them at 3.4% my auto loan is lower than my student loans and that is ridiculous. And while $33 a month isn’t a lot in the long run it does add up. I wish I could get a meal for $33 where I live. Hell I can’t get to some restaurants for less than $20 after paying tolls. The rich and powerful people borrow money at less than 1% and we are hitting up our future generations for more and putting them behind the eight ball when they should be out in the world establishing themselves.

    1. Stephanie Halligan Post author

      You’re right: $33 does add up, and it’s not fair that many can borrow for less than 1%. But I think this interest rate debate is covering up the larger issue: let’s make college more affordable so you don’t have to borrow so much.


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