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TheStreet Open House

Student Loans 101: The Interest Rate Uproar

CANDICE CHOI

NEW YORK (AP) â¿¿ Lawmakers on both sides of the aisle agree: It would be a mistake to let interest rates on student loans double in July. Especially if they're going to be blamed for it in an election year.

Student loans have become a political football in recent weeks, with Democrats and Republicans maneuvering to point fingers in case Congress fails to pass legislation to prevent rates from rising this summer. The rhetoric has created confusion â¿¿ and perhaps unnecessary alarm â¿¿ about what's really at stake.

The issue centers on a type of federal loan that's reserved for undergraduate students. The interest rate on these Stafford loans is set to jump from 3.4 percent to 6.8 percent on July 1. The problem is that Congress can't agree on exactly how to fund a one-year extension of the current rate, which the government estimates would cost $6 billion.

The debate is touching a nerve because it underscores the broader problem of college affordability and ever-increasing levels of student debt. The average in-state tuition and fees at four-year public colleges rose about 8 percent from year ago, according to The College Board. That pushed the cost to an all-time high of more than $8,000.

"To look at the bigger picture, higher education is practically a necessity and it's getting harder and harder to afford," said Rich Williams, an advocate with US PIRG, which lobbies on student loan issues.

To make his case to young voters, President Barack Obama even made an appearance on NBC's "Late Night with Jimmy Fallon." The president looked into the camera and said "now is not the time to make school more expensive for young people" as Fallon and his house band provided a slow-jam accompaniment.

But amid all the rhetoric, it's easy to forget that not everyone who has a student loan would be affected. For those who would be, the impact might not be as dire as feared.

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