Congress Lowers Federal Student Loan Interest Rates

Why is the government in the lending business, again?

Students heading to college this year will see lower interest rates on federal student loans, after Congress approved a bipartisan compromise to change the way the federal government sets interest rates on student loans.

The U.S. House approved the measure Wednesday by a vote of 392-31. The Senate passed the legislation by a vote of 81-18 on July 24.

Interest rates on subsidized Stafford loans doubled on July 1 from 3.4 percent to 6.8 percent when Congress failed to intervene.

The compromise legislation ties interest rates to the rate on high-yield 10-year Treasury notes, with caps of 8.25 percent for undergraduates and 9.5 percent for graduate students. Parents' interest rates would not exceed 10.5 percent.