Interest rates on certain newly-originated federal student loans have been low over the past few years thanks to the College Cost Reduction and Access Act of 2007 (the same law that created Income Based Repayment). This law gradually cut fixed interest rates on newly-originated subsidized federal Stafford loans for undergraduate students from 6.8% down to 3.4% over the past 5 years. On July 1, 2012, these interest rates are slated to return to 6.8% for new federal student loans, making them significantly more expensive.
This change will not have any impact on graduate student borrowers or borrowers who have already entered repayment. It will, however, lead to thousands of dollars in additional interest charges for undergraduate students who take out new subsidized federal Stafford loans starting July 1, 2012. Not exactly a way to reduce student loan debt burdens for college students. There have been a couple of bills introduced into Congress to try to prevent these interest rate hikes from happening, but their chances of passage are unclear.
To read more about these changes, click here.