The Draconian Hidden Penalty on Student Loans

Republicans and Democrats in Congress continue to debate whether to hold down interest rates on federal student loans. The rates on the most common type, "Stafford loans," have been low since 2007-- 3.4% for this academic year. But they are scheduled to double on July 1 if Congress doesn't act. Senate Republicans on Tuesday blocked a Democratic bill to extend the rate. However, there's another mostly hidden, rarely publicized percentage rate coming out of the U.S. Department of Education (DOE) that ought to be getting attention: If you default on your student loan, you're subject to a penalty up to 25% of the amount in default.