Student loan interest set to skyrocket

INDIANAPOLIS (WISH) - It's become the latest political fight in Washington D.C. A subsidy on the interest rate for some student loans is set to expire in July, unless Congress takes action. And right now, Congress isn't making any moves to renew it.

At issue are subsidized Stafford loans. Right now, if you have one, you pay 3.4 percent interest on it. From July 1 on, unless action is taken, the interest on those loans doubles, to 6.8 percent.

Ryan Hammer works in the production department of WISH-TV. And like millions of people his age, he owes thousands in student loans.

"It was about the only way we could afford for me to go to college," Hammer said.

The prospect of paying twice as much in interest scares him.

"Oh, yeah, absolutely. You know, we are living paycheck to paycheck all the time,” he said. “We are actually moving to a smaller apartment now, so we can have that money to put aside, cause we'd like to buy a house."

Here's what the interest rate increase would mean on a $20,000 loan over the typical 10-year payback. The payment would rise more than $30 a month - to $230 from $197. By the time the loan is paid in full, it would more than double the total amount of interest paid. The White House said the increase would affect more than 290,000 students in Indiana, costing them just over $900 each, or a total of just over $270,000 statewide. Despite those numbers, most of you would not be affected.

"It's strictly on subsidized Stafford loans to undergraduate students," said Robert Murray, vice president of communications at Indianapolis-based USA Funds, which services student loans. "It has no effect on loans that have already been dispersed, if the borrower is out of school and in repayment. Typically, if they took the loan out since 2006, they have a fixed rate and that will not change."

So the increased interest rate would only affect students who get a loan after July 1. And only if they qualified for a subsidized Stafford loan, which goes only to those who can show extreme need. The cost of keeping the program for one year is estimated at $6 billion, which has sparked a fight in congress.

Both President Barack Obama and GOP front-runner Mitt Romney have said they favor a one-year extension of the lower interest rate. But unless you qualify for a subsidized Stafford loan that you get after July 1, this fight will not affect the interest rate you pay.