Both houses of the United States Congress recently passed legislation designed to stabilize student loan interest rates. President George W. Bush is expected to sign the bill into law.
The bill, which the House of Representatives approved last week, would set the student loan interest rate at a constant 6.8 percent beginning July 2006. Until then, the present interest rate formula will remain in effect.
The new 6.8 percent loan rate would represent an increase over present rates. Carol Larson, assistant director of financial aid, said current loan rates are at 6 percent, the lowest they have been in the past five or six years.
The current legal maximum student loan rate is 8.25 percent.
"For the most part they've been right at 8.25 percent," Larson said.
The House passed the bill on a 373-3 vote last week. Supporters of the legislation said it is necessary to prevent a crisis in the guaranteed student loan program.
According to proponents of the new law, the formula for student loan interest rates would change next year, which could make the interest rates much more volatile.
"Without this agreement, student loan rates would continue to be unpredictable," said Democratic Sen. Tim Johnson of South Dakota, in a written statement.
According to supporters of the bill, many lenders would leave the student loan program if the federal government does not act to stabilize student loan rates.
Larson reacted positively to the proposed law.
"Before, the student interest rates were variable," she said. "This lets you know what the rates will be throughout the course of the loan."
The bill also affects parent loan rates. It sets a fixed parent loan interest rate of 7.9 percent, starting in 2006. Through the parent loan program, the federal government lends money to the parents of dependent college students.
These changes to the program will not be retroactive; the new 6.8 percent fixed interest rate only will affect loan agreements that are signed after July 2006.
The bill passed the Senate late last year but was sidetracked in the House because of an unrelated dispute.
The interest rate bill previewed issues that will be debated once again in the reauthorization of the 1993 Higher Education Act next year.
"Re-authorizing the Higher Education Act in 2003 will be quite a large task, and it was key that we fix the interest rates before we start discussing anything else," Johnson said in a written statement.
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