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Key U.S. student loan rate doubles

Senate likely to vote July 10 on a bill that extends for a year a fixed rate of 3.4 pct.

WASHINGTON - The interest rate on a key federal student loan doubled Monday, as expected, but it was unclear whether Congress would allow the increase to stand before the new school year got under way.

Federal law has set the rate for new subsidized Stafford loans at 6.8 percent, up from 3.4 percent. The subsidy means that these loans, for undergraduates with demonstrated financial need, do not accrue interest while the students are in school. It is estimated that, for many borrowers, the rate hike would add about $1,000 in interest over the life of a loan.

Subsidized loans taken out before Monday are not affected. Nor are other federal loans to undergraduates, graduate students, and parents.

More than seven million students are projected to take out subsidized loans for the coming school year.

"I'm upset by it," said Kolton Gustafson, a George Washington University political science major heading into his senior year. "I wish there was a larger reaction to it.

"Many students are saying and thinking, 'I'll pay it later,' " the Grand Junction, Colo., native added. "That's why you don't see more people fighting back."

Lawmakers and President Obama sought to prevent the rate hike, but were unable to reach an accord before Congress left Washington for its July Fourth recess. The Republican-led House passed a bill in May to tie loan rates to the government's cost of borrowing, but the administration criticized some of the provisions and threatened a veto. The Democratic-led Senate stalemated.

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.

Like congressional Republicans and some Democrats, Obama has proposed tying loan rates to annual market benchmarks instead of the current practice, in which Congress fixes rates. But lawmakers have been unable to agree on the details of such a switch, such as rate caps and annual rate variability for individual loans.

Many congressional Democrats want to extend the fixed 3.4 percent rate for a year, echoing a measure enacted a year ago. The Senate is expected to vote July 10 on whether to take up such a bill, which would be retroactive to Monday. It is likely to face a Republican filibuster.

Experts say that Congress still has time to act before the rate hike ripples through the higher education system. But if Congress adjourns for its August recess without passing a bill, the impact on students will be significant.