Congress passes legislation to prevent student loan rates from doubling

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Congress passed legislation Friday to prevent student loan interest rates from doubling this year.

President Barack Obama will now have the opportunity to sign the legislation that will keep the interest rate at 3.4 percent for another year, through June 30, 2012.

Without action this week, interest rates for subsidized Stafford loans issued starting Sunday would have doubled to 6.8 percent.

At the University of Minnesota, 13,600 undergraduate students received a total of $53 million in subsidized loans this year.

“The vast majority of our students are dependent on the subsidized and the unsubsidized direct student loan – it’s our main program,” said Deb Pusari, associate director of financial aid in the Office of Student Finance.

Bundled with the legislation is a highway bill that could save 2.8 million jobs. Without action, federal authority to conduct road, mass transit and other transportation programs would have ended this weekend, along with the government’s ability to collect gasoline and diesel taxes that fund the programs.

The legislation comes months before November elections, a time when politicians were hesitant to upset students and their families with higher interest rates.

Subsidized Stafford loans are awarded to students based on financial need, and Pusari said low- and middle-income students generally qualify.

The deal will limit undergraduate federal subsidies to six years, saving $1.2 million. Subsidies, a period during which the government does not charge interest, can currently last as long as it takes an undergraduate to obtain a diploma.

The potential rate increase would have cost the average student an extra $1,000 over the decade it normally takes to repay the loan, affecting an estimated 7.4 million students receiving such loans over the next year.

“They’re out on their own and they’re having to make their loan payments in addition to their home payments and starting up their new jobs,” Pusari said. “[The extra cost] can make a difference for students when they’re on a tight budget.”

In 2010, 63 percent of graduates from the University of Minnesota had debt, according to the Project on Student Debt.  The average debt for University graduates was $27,578.

The Associated Press contributed to this report.