Student loan rates double beginning today

WASHINGTON Students preparing to take subsidized government loans will see their interest rates double to 6.8% from current levels, starting Monday, July 1.

But hope isn't lost yet. Lawmakers are working hard behind the scenes trying to strike a deal to save the 7 million college students who are slated to take the subsidized federal Stafford loans this year.

Senate Democratic leaders are throwing their weight behind a bill that would extend the 3.4% rates for another year, just as Congress did last year.

House Republicans have said they'd prefer a longer term solution, like the one they passed back in April to keep rates low for now but rise along with market rates in the future.

Students are being told to prepare for the worst and hope for the best.

"We're advising our schools to tell students that their subsidized Stafford interest rates are going to be 6.8% on July 1," said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

Students with loans at stake have been watching the debate on Capitol Hill with worry and apprehension.

The higher rates that go into effect on July 1 only apply to new loans. These loans are generally awarded to only about a third of undergraduate students in financial need. Only Congress can change the rates and any tweak to the law is expected to be retroactive July 1.

But there was no clear message if any deal would be reached before the end of summer, when the number of students taking out loans will ramp up ahead of the school year.

Generally, lawmakers in both parties in Congress and the White House agree that something should be done, but they don't agree on what.

The Republican-controlled House passed a bill to stop rates from doubling now, but would allow them to rise later. Senate Democrats don't like it. President Obama vowed to veto it, calling it the "wrong approach." However, Obama has a plan that's very similar to the House plan.

Senate Democratic leaders want to extend the low rates for a year or two, and give Congress time to come up with a longer term solution as a part of the normal budget process.

Meanwhile, a group of two Senate Democrats and two Republicans struck a deal that also resembles the House plan.

Undergraduates, who take out unsubsidized student loans from the government, are already paying the higher 6.8% rate since 2007.

Some Washington leaders want to revamp the student loan program and peg rates to economic conditions. The President and House Republicans, for instance, have proposed ways of tying student loan rates to 10-year Treasury notes.

However, the two sides disagree on the details, such as how to cap rates in a way that will ensure students don't get hosed if interest rates skyrocket. They also disagree on ways to let students "lock in" their rates from year to year.

Outsized student debt has become a pressing issue, with many young graduates deep in debt and without jobs. It is second only to mortgages as the largest debt that consumers carry. In 2011, students on average owed nearly $27,000 in loans.

26-year-old Stephanie Davis graduated from auburn university in 2010.{} She now faces the challenge of repaying both federal and private student loans.

Davis admits she didn't know what she was getting into when applying for student loans.

Now, she hopes her experience can help other students make wiser decisions.

If I knew I was going to be having to deal with this when I graduated, I wouldn't have applied," says Davis. "I only have $30,000 in federal loans, and $12,000 of that is my interest. In my private loans, $30,000 is interest."Davis wonders if she will ever be able to pay off these loans. Right now she's works part-time and hopes to go back to school

However, she says, "Until I can actually afford, save up, and afford to go back, I'm not going to."

Brent Gage is the associate provost for enrollment management at UAB. Gage says the university offers{} entry and exit counseling to help students understand and make wise decisions about borrowing

"I think of this as more, what we need to do a good job of is educating them in the long view, what does this mean in five years, in ten years," says Gage.

Davis encourages incoming students and their parents to make a budget. Also, he wants students to know they don't have to accept every option that federal Stafford loans offer.