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Student Loan Rates Are Headed Up

Congress probably won't extend the interest break to new loans.

Student borrowers and their families have been getting a break on subsidized federal loans for the past five years, but that's about to change. Rates are set to double from 3.4% to 6.8% this summer unless Congress steps in, which is unlikely.

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Meanwhile, the recently released 2014 White House budget would lower rates immediately but raise them over the long haul by tying them to ten-year Treasury bond rates. For now, it looks like the July 1 hike will happen. "I'd be surprised if anything happens with the budget proposal before then," says Mark Kantrowitz, publisher of FinAid.org.

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There's no need to panic, even if rates double for loans taken out after July 1. If you borrow $5,500 in subsidized federal loans -- the maximum allowed per year for juniors and above -- and repay it over ten years, your monthly payment will be about $9 more with a 6.8% interest rate. That's roughly $1,000 more in the total amount you have to pay back ($7,670), manageable if you're smart about handling your money.

To minimize debt at graduation, go back to the basics. Apply for aid, scholarships and grants, and don't borrow more than you need. Try to keep student loans at graduation less than the annual starting salary for your first job.

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