Bad news for some seven million college students with government-subsidized student loans. The interest rate on their loans doubled overnight after Congress failed to act.
The change takes effect Monday, July 1, 2013. The higher rates only apply to new loans. Only Congress can change the rates.
Brian Singer with the Brownsburg-based Singer Financial Group joined Eyewitness News at Noon to discuss what that means.
"The loans affected are government-subsidized. We might hear of these as Stafford loans. Those undergraduate students that are enrolling in their freshman year for 2013-2014 are gonna pay 6.8 percent rather than 3.4 percent," Singer explained.
Subsidized Stafford loans account for roughly a quarter of all direct federal borrowing.
The maximum loan that could be taken is $23,000. That amounts to $4,600 in additional interest charges.
The effects aren't immediate, though. That's because most students sign their loan documents when they return to campus in the fall.
Both political parties tried to blame the other for the hike and student groups complained the increase in interest rates would add to student loan debt that already surpasses credit card debt in this country. Congress could vote to lower the rates after lawmakers return from the Fourth of July holiday.
Meantime, with so many students borrowing money, Singer estimates that new graduates are around $35,000 in debt on average.
"When you go out and get your first job, you have to be very mindful of being on a budget and taking care of your student loans," Singer said.
"It's a huge number. I have two kids that went to college. We got student loans for our kids. They paid those loans back on their own when they were working. They were diligent and mindful of their expenses. That's really what they have to be aware of," he said.
So is there any relief in sight?
"Unless Congress and the White House can get together and come up with an alternative to this current situation, you're gonna see a big hit in that amount of interest," said Singer.
He says student loan debt now exceeds credit card debt to the tune of around $1 trillion. That's not good news for the country's economy.
"The fact is when you have this kind of debt situation that actually exceeds credit card debt...it's having an upward effect on tuition rates. You have decisions being changed for new grads that are going out in the workplace and they have to sometimes make some lifestyle-changing decisions as far as - can I buy that new car? How much money can I put down on a house? Those kinds of things can affect our economy," he said.