Federal student loan interest rate will stay at 3.4% for at least one more year

by Grace

Subsidized Stafford student loan interest rate will stay at 3.4% for at least one more year.

Congress acted just under the wire Friday to save college students from paying more for student loans. The legislation—which will freeze interest rates on federally subsidized Stafford loans at 3.4 percent, avoiding a scheduled increase on July 1 to 6.8 percent—now heads to President Barack Obama for signature, the Associated Press reports.

Who will foot the bill?

Most of the money is expected to come from raising premiums for federal pension insurance. But students also will help foot the bill. Congress is looking to get $1.2 billion in savings from changing eligibility for student loans. It limits loan eligibility to 150 percent of a program’s time to degree — or six years for a bachelor’s degree and three years for an associate degree.

Who will benefit?

The move to stop interest rates from doubling is expected to affect 7.4 million students, saving each an average of $1,000 in extra financing fees.

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More student borrowers turn to subsidized Stafford loans than any other type of college loan. Roughly 9.3 million students signed up for one during the 2010-11 academic year, according to FinAid.org. The federal government pays the interest on these loans while students are in school. With other student loans—including unsubsidized Stafford loans—borrowers are responsible for all the interest.

* Interest is paid by the federal government during in-school period.

Students qualify for the subsidized Stafford loan based on financial need, which is determined in part by the cost of attending a school. More than a quarter of undergraduate students with family income of $100,000 or more received subsidized Stafford loans at colleges costing $30,000 or more in 2007-08, according to the latest data from FinAid.org.

Related:  Overview of student loan options

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