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August 09, 2013

After doubling on July 1, student loan interest rates for millions of Americans will be restored to 3.86 percent.

President Barack Obama signed a student loan bill late Friday afternoon designed to keep interest rates low - at least for now - by tying them to the financial markets.

Economists predict the new rates for undergraduates will remain lower than expected in the coming years.

After months of debate and political bickering, Congress approved a bill that links student loan rates to the markets. So if the economy improves, student loan interest rates would go up. Those rates will be capped at 8.25 percent for undergrads; 9.5 percent for graduate students.

Barbara Lambott, an analyst with Moody’s Analytics, said undergraduates could pay less for the next six years. It’s a different story for those seeking a master’s degree.

“Graduate students will pay a lower rate this year, but because that rate is higher it will quickly be more than what they were projected to pay,” Lambott said, adding that the more debt students accrue the more likely they are to push off life milestones, like getting married or buying a home.

Moody's also found the new federal loan rates are credit positive for undergraduate programs, but carry negative credit implications for graduate colleges and universities.

The White House has been touting the plan for weeks, saying it will save millions of students an average of $1,500 on federally subsidized Stafford loans taken out this year.

Despite their bickering, Democrats and Republicans agree: More work is necessary to rein in college costs for middle- and low-income families and make higher education more attainable.

confronting cost, student loans, higher ed, interest rates

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