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Have student loans? What the rate hike means for you

Interest rates on student loans are set to double on Monday if Congress doesn't act fast.

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A young man holds a sign during an Occupy Wall Street rally against the high cost of college tuitions April 25, 2012 in New York. Congress left Washington for the July 4th holiday without a deal to stop student loan interest rates from doubling. (DON EMMERT/AFP/Getty Images)

Time is running out for Congress to stop interest rates on federally subsidized student loans from doubling.

Rates are expected to shoot up from 3.4 percent to 6.8 percent unless Congress can shove a deal together before Monday, July 1.

Since that's unlikely to happen (Congress is already on vacation for the 4th of July) it's safe to assume that rates are going up Monday morning.

This isn't a small problem.

More than 38 million Americans are carrying a total of nearly $1 trillion in student loan debt.

Economists at the Federal Reserve Bank of New York found that the average student loan balance among 25-year-olds with student debt grew by 91 percent in a decade, from $10,649 in 2003 to $20,326 in 2012.

So if you're already struggling with student loan debt or you're a panicked recent grad about to start those payments - what does this mean for you?

How much will the rate increase add to the average bill?

Congress' Joint Economic Committee estimates the increase will cost the average student $2,600. That's an average spread out over the life of the loan.

A $23,000 federal subsidized Stafford loan under the higher interest rate would cost an extra $3,000 over 10 years.

For those with really high debt the bite will of course be bigger. Graduates with $85,000 of debt can expect to tack on an average of $140 a month to their bill over a decade.

Who is this going to affect? 

The biggest group of people who should be worried is the 7 million students expected to take out new Stafford loans this year. They're going to be stuck with a much bigger bill when they start paying the money back.

If you're already paying back loans - and don't expect take out any more - your interest rate will not be affected. Also, the rates on new unsubsidized Stafford and PLUS loans also will remain the same.

If they come up with a deal after the July 1 deadline will it be retroactive?

Yes, probably. Lawmakers skipped town for July 4th vacation but they're set to meet on July 10 to figure out what to do about the interest rate problem. If they come up with a deal it will apply to any new loans taken out after July 1 but before a deal is signed.

"It is possible for them to make a retroactive change, but only if the loans have not yet been disbursed," Mark Kantrowitz, senior vice president and publisher of Edvisors.com told NBC. "So they could make a retroactive change if the US Department of Education delays the disbursement."

Why can't Congress just freeze rates like they did last time?

In 2007, Congress set the rate at 3.4 percent with an expiration date of last year. But it was presidential election season and no one wanted to be responsible for increasing student debt in an election year. So Congress agreed to extend the deadline until June 30.

"Last year we kicked the can down the road and passed a one-year extension for only a small group of students. ... Why would we make the same mistake again and just kick the can down the road another year?" said Sen. Richard Burr, R-N.C.

Congress is looking for a more permanent fix to the problem but can't agree on how to get there.

What are the options?

Republicans want to let interest rates fluctuate with the markets every year and use the proceeds to pay down the nation's deficit. The rates would be reset every year according to the rate on US Treasuries with a cap of 8.5 percent.

Senate Democrats aren't happy about any plan that would let rates get that high - way above the 6.8 percent they're arguing over now.

Some Democrats want to extend the current 3.4 percent rate for another year to buy some time. The cost would be offset by closing tax loopholes on both inherited retirement funds and oil companies, according to ABC.

A bipartisan deal introduced Thursday would also link rates to the Treasury 10-year note plus 1.85 percent. Graduate loans would be market rates plus 3.4 percent, and parent PLUS interest at market rates plus 4.4 percent, with all loans at interest rates fixed for the life of the loan.

http://www.globalpost.com/dispatch/news/regions/americas/united-states/130629/have-student-loans-what-the-rate-hike-means-you