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Five Things You Need to Know About Student Loans

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Bipartisan legislation that will tie interest rates on federal student loans to market rates is headed to President Obama's desk, after the bill passed the House with a 392-31 vote. The president is expected to sign the bill into law, which is based on a deal formed by members of the Senate.

On July 1, interest rates on subsidized Stafford loans doubled from 3.4 percent to 6.8 percent. Senators worked to form a bipartisan compromise after they were unable to pass a short-term extension on low rates, as they had the year before when young people led an effort to keep rates steady.

Under the plan, which will take effect when President Obama signs the bill and will be retroactive to July 1, students will immediately see lower interest rates. The more than 11 million borrowers who will take out Stafford loans this year will benefit from Congress' move to link student loan interest rates to the 10-year Treasury note, which is at historic lows.

Here's what student loan borrowers should know about the legislation.

Borrowers will immediately see lower interest rates. Undergraduate borrowers will take out loans with rates of 3.86 percent this fall, while graduate students will see Stafford rates of 5.4 percent and parents relying on PLUS loans will have an effective rate of 6.4 percent.

That's an average savings of $1,500 per loan. Compared to the current interest rate of 6.8 percent, the deal will save millions of hardworking Americans thousands of dollars.

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Your rate will be locked in when you take out the loan. While rates will fluctuate from year to year under the new model, borrowers can find comfort in knowing the interest rate when the loan is issued remains locked over the life of the loan.

Breathe easy -- this isn't a one-year extension. In creating this compromise, Congress opted to avoid passing short-term legislation that would have created another fight next summer. Still, senior members of the Senate, including Sen. Tom Harkin (D-IA), who chairs the Senate Health, Education, Labor, and Pensions Committee, has indicated that Congress will continue to examine the student debt system and push for other long-term solutions that benefit current students and borrowers.

And interest rates are capped, to prevent spikes down the road. Congress also included caps on interest rates: 8.25 percent for undergraduates, 9.5 percent for graduates, and 10.5 percent for PLUS loans.

Despite some tension in the Senate over how to approach the issue, the bill passed that chamber with a vote of 81-18.

Other members of Congress noted that the bill was crucial for students in the immediate future, and acknowledged that need to continue addressing our student debt crisis. In total, Americans owe $1.2 trillion in education loan debt, more than we owe on credit cards and auto loans.

"While it provides real relief for the next few years, it does not solve the long-term student debt crisis," Rep. George Miller (D-CA) told Politico. "We must remain on guard against any unacceptable rises in interest rates. In the meantime, we now have a bill that will make a positive difference for families struggling to pay for college."

One option for Congress to consider is allowing existing borrowers to refinance their debt, which would provide a significant boost to the economy and begin to reverse some of the crippling impacts of student debt. Find out more about plans to refinance student debt here.