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Are You Ready for Student-Loan Rates to Skyrocket?

April 27, 2012
URL: http://www.entrepreneur.com/article/228768

UPDATE May 9, 2012: Senate Republicans yesterday blocked consideration of a bill that would prevent the doubling of certain student-loan interest rates in July. Meanwhile, student borrowers remain in limbo.

The interest rate millions of undergrads and graduate students pay on Stafford Loans, may double this summer should Congress fail to agree on a measure that would prevent the hike.

The Republican-led U.S. House of Representatives today approved a $5.9 billion bill that would preserve the low rates on federal Stafford Loans, which are fixed-rate loans available to undergraduate and graduate students. But to pay for the measure, the House elected to pull funds from a provision in the health care law that helps states and local governments pay for everything from mammograms to anti-obesity campaigns.

Though Senate Democrats share the House's goal of preserving low rates on student loans, they would pay for it by closing a tax loophole that allows wealthy individuals who earn more than $250,000 a year to bypass paying Medicare taxes on their earnings. That measure is expected to save $6 billion over 10 years.

The upshot from either bill passing would mean that students will get a one-year reprieve on seeing their Stafford student-loan rates double from a current 3.4 percent on July 1. No doubt that's a welcome situation for many young entrepreneurs. But the question is, will Congress agree to a compromise? At present, the chances don't look promising.

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Senate Majority Leader Harry Reid, (D., Nev.) opposes the House measure, while the Obama administration threatened to veto it. And it's not hard to imagine that House Republicans will have a hard time coalescing behind the Senate bill, which will come up for a vote on May 8.

Still, there is precedent in slashing the health care law for the sake of a popular bill. To pay for the hard-fought payroll tax cut extension package that passed earlier this year, Congress did reroute $5 billion from a fund within the health care law called the Prevention and Public Health Fund.

Related: Seven Ways to Effectively Juggle Business and School

Cutting into that fund again is being criticized as yet another attack on women, as that $15 billion fund largely helps provide services to women such as pregnancy-related care and cancer screenings. Additionally, congressional Democrats suggest that further cuts could undermine the potency of the health care law.

What would you sacrifice for Low student-loan rates?Leave a comment and let us know what you think Congress should do.