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Reprieve nearing on college loan rates


After the Senate overwhelmingly passed a bipartisan bill that reverses the July 1 spike that doubled interest rates for some college student loans, it appears likely that the legislation could pass the House early next month.

The loan rate for federal Stafford student loans ballooned to 6.8 percent this month after Congress, in its usual bickering manner, did nothing to avert the jump.

The Senate bill is a compromise that creates certainty for the program. Rates under the bill would be tied to the 10-year U.S. Treasury note. Interest rates for both subsidized and unsubsidized Stafford loans would be 2.05 percentage points above the Treasury note rate. For graduate loans, the difference would be 3.6 percent.

Cap rates would be 8.25 percent for undergraduates, 9.5 percent for graduates and 10.5 percent for parents who take out PLUS loans to help pay for their children’s college costs.

What those rates and caps do is give students (and their parents) certainty over the maximum amount that they’ll have to pay on their loans, while also giving them the benefit of current low rates.

One thing that is missing, however, is making sure that students — and in some cases their parents — understand exactly what they’re committing to when they borrow this money.

That seems to be the bigger problem. A higher interest rate will, of course, require you to pay back a loan at a higher rate. But students too frequently don’t look down the road. When they graduate and (hopefully) find a job, they often have sticker shock when they realize just how deeply they have fallen into debt. There has to be a better way of preparing student borrowers in regard to what can become of these huge debts.

President Barack Obama, speaking Thursday at the University of Central Missouri, also hit on a salient point. The cost of college has skyrocketed and shows no signs of slowing, regardless of how well or poorly the economy is doing.

“If college costs keep on going up, then there’s never going to be enough money,” Obama said.

What solutions Obama has is mind is unknown, and whether they’ll be workable is also unknown.

The ever-increasing tuition and associated costs of college, however, are very real problems. Already those expenses are out of reach for many American families without the help of programs such as the Stafford loans. Eventually, students will be unable to save, earn and borrow enough money to cover those costs.

There has to be a better way.