It's only Skype, and I turned off global hotkeys and it's still doing that. I don't know where to find out why the Alt key alone is causing the huge volume decrease. The Alt key usually requires another key to be a hotkey, but this is when only the Alt key is held down. As soon as the Alt key is released, the volume increases to normal. Any ideas?
This is the fix:
Open Control Panel, select Sound.
Go to Recording tab and double click your microphone.
Under Advanced tab uncheck Allow applications to take exclusive control of this device. Click Apply and OK to save changes.
Very simple, yet it took me weeks of Google searches to find it.