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Student loans 101: What's at stake in D.C. feud over college loan subsidy?

With the burden of expensive college bills weighing on many middle-class families, student debt is a natural issue for politicians to seize. After all, how many times have we heard lately that student debt now exceeds $1 trillion and tops credit card debt?

It’s in the spotlight now because on July 1, the interest rate on some federal student loans is set to double, from 3.4 percent to 6.8 percent, if Congress and President Obama don’t agree on a fix. With 10 days to go before the deadline, Mr. Obama called on Congress, again, to "do the right thing" and keep the lower rate.

Yet the rate change applies only to a portion of new loans to be issued for the coming academic year. How much of an effect would it really have – and how did we get here in the first place? Here’s some basic context.

Susan Walsh/AP
President Obama greets students after he called on Congress to stop interest rates on student loans from doubling next month during a news conference in the East Room of the White House in Washington on June 21, 2012.

1. Which loans are we talking about?

Susan Walsh/AP
President Obama greets students after he called on Congress to stop interest rates on student loans from doubling next month during a news conference in the East Room of the White House in Washington on June 21, 2012.

Federal subsidized Stafford loans. During this past school year, undergraduates who qualified based on a test of financial need were able to take out a maximum of $3,500 to $5,500, depending on their year in college. The loans carry a fixed interest rate of 3.4 percent.

(By contrast, all students are eligible for regular Stafford loans, up to $31,000 total during college and graduate school. These bear a fixed rate of 6.8 percent. Many students take out both types of loans.)

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Mark Sappenfield
Editor

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