Student loan interest rates could increase

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Reporter - Kendall Downing

CARBONDALE, Ill. - President Obama is calling on the House of Representatives to help prevent a pending hike on student loan interest rates this July.

The President and Congress have agreed to peg federal student loan rates to a market-based interest rate, tied into the 10-year treasury note, but the president wants the interest rate to be fixed over the life of the loan, while Republicans want the loan rate to adjust yearly based on market conditions.

If Congress doesn't act, subsidized loan rates will increase from 3.4% to 6.8% beginning July 1.

If that interest rate goes up, it means students will pay more for their loans when they graduate from college. That's why university administrators are waiting to see when and if Congress will act.

SIU-Carbondale Chancellor Rita Cheng said she has her eyes on Washington. Eight thousand students would be affected at SIU-Carbondale, in addition to any new students that take out loans.

The loans we're talking about are federal subsidized Stafford Loans. Students qualify for them based on financial need.

Summertime on a college campus is pretty slow, aside from construction.  That's not the case in Chancellor Rita Cheng's office.

"This is something that I've been watching for over a year," she said.

Top of mind for her is the student loan struggle in Washington and higher rates that could come with a new school year.

"This affects new loans, so it really affects more than incoming students. Our current students renew their financial aid each year," she said.

Cheng said if loans become more expensive, students may make choices, like working more and enrolling in fewer hours, or taking a break from school altogether.

"I think the worst thing is that students might say well maybe college isn't for me. And that would be a big mistake," said Cheng.

Certified Public Accountant Dean Owen said all the attention on student loans proves that parents nowadays need to plan.

"Knowing how to prepare for it is important. College is a really big expense," said Owen.

Owen suggests parents talk to a financial advisor as early as possible. Two options he recommends for saving for college are a Roth IRA and a 529 Plan. Both are tax-favored because you don't have to pay on any gains.

Chancellor Cheng said families need to be financially aware, but so does our society.

"I think it's really important that we as a nation continue to have conversations at the federal and state level about helping families with college," she said.

Secretary of Education Arne Duncan said his department is not in favor of the interest rate increase.

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