As many of you know, interest rates on undergraduate federal Stafford student loans were slated to double on July 1 from 3.4% to 6.8% unless Congress took action. Well, Congress did not take action (shocking, I know). And interest rates have officially now doubled for these loans.

Last week, the Senate announced a deal to reduce these interest rates and reform the entire federal student loan interest rate system. This deal was put together by a bipartisan group of Senators, and it was strongly backed by the White House. Here are the basics: The bill would tie student loan interest rates to the rates of 10-year Treasury notes, PLUS an additional 2.05% for undergraduate loans, 3.6% for graduate loans, and 4.6% for Parent loans.

Here’s the good news:

• Because the rates of 10-year Treasury notes are currently very low, interest rates for new federal loans this year will also be fairly low. Specifically, taking into account the above formula, interest rates will be 3.86% for undergraduate loans (much better than 6.8%), 5.41% for graduate loans, and 6.41% for Parent loans. Not great, in my opinion, but all things considered, not bad.
• The bill would be retroactive to July 1, meaning those current undergraduate students whose federal loans this year would otherwise be 6.8% will see a reduction to 3.86%.
• Interest rates will be fixed for the life of the loan. This means the rates won’t be variable, and they won’t go up and down every year (which can make loan repayment management incredibly tedious and stressful).

Not bad, right? So what’s the bad news? Well, I’ll tell you:

• The rate of 10-year Treasury notes is very, very low right now. So low, in fact, that the only direction it really can go is up. That means that federal student loan interest rates will gradually increase over the next several years.
• The maximum interest rate for each respective type of loan is capped. Great, right? No. Because the caps are remarkably high: 8.25% for undergraduate loans, 9.5% for graduate loans, and a whopping 10.5% for Parent loans. These rate caps are INSANE.
• The actual interest that can accrue at these high rates is absolutely astonishing. A $30,000.00 undergraduate loan at an 8.25% interest rate may accrue an additional $12,000.00 in interest over 5 years. A $30,000.00 Parent loan at a 10.5% interest rate may accrue an additional $16,000.00 in interest over 5 years. This is nothing short of robbery.

Lawmakers are hailing this bill as fiscally responsible, as it would reduce the deficit by hundreds of millions of dollars over 10 years. The Congressional Budget Office also estimated that the government would see a 10-year profit of $184 billion due to these higher interest rates. If that doesn’t infuriate you, I don’t know what will.

In any event, the silver lining to this horror show is that most of you who already graduated will not be impacted, since these interest rate changes will only apply to newly-issued federal student loans, not pre-existing federal student loans.