rates on federal student loans are set to rise July 1.
It’s not the first time the cost of borrowing has gone
up for students, and it likely won’t be the last.
Still, experts say, federal loans remain a good deal.
to expect. First, the rate increase affects only loans
disbursed on or after July 1 of this year. Loans taken
before then will not be affected.
new loans, the rate on undergraduate Stafford loans will
climb to a fixed 4.66 percent from 3.86 percent.
Stafford loans for graduate students, the rate will jump
to a fixed 6.21 percent from 5.41 percent.
loans, which either parents or graduate students can
borrow, will rise to a fixed 7.21 percent from 6.41
rates are changing. Rates are fixed for the life of the
loan, but the cost of debt in future years could still
2013, Congress passed legislation that tied federal
student loan rates to the 10-year Treasury note,
resetting every July 1. Without the new law, rates last
year would have doubled from 3.4 percent to 6.8 percent.
now Treasury rates are rising — and could go higher,
pushing up the cost of borrowing for students.
fact, according to projections by the Congressional
Budget Office, student loan rates could reach 7.05
percent by 2018.
will think fondly of when the rate on a Stafford loan
was only 6.8 percent," said Mark Kantrowitz, an
expert on college financing and publisher of Edvisors,
an online resource about financial aid.
to do. Steeper interest rates mean students will face
higher monthly bills once they’re out of school.
so, Kantrowitz says, federal loans are still the best
option for the growing number of students who need to
borrow to pay for college.
2012, the latest year for which figures are available,
71 percent of all students graduating from four-year
colleges had student loan debt, up from 68 percent in
2008, and 65percent in 2004, according to The Institute
for College Access and Success.
one, interest rates on federal student loans are capped
at 8.25 percent to 10.5 percent, depending on the type
"You have a range of repayment options and consumer
protections that other financing doesn’t
provide," said Lauren Asher, president of TICAS.
options include income-based repayment plans, which cap
your monthly bill to an affordable percentage of your
income, and the ability to defer payments if, say, you
lose your job.
student loans may be cheaper than private loan options.
Sallie Mae, for example, fixed rates for private student
loans range from 5.74 percent to 11.85 percent. To get
the lower rate you need an excellent credit rating.
contrast, most federal student loans do not require a
this year’s rate jump for federal loans may be
freshman who borrows the maximum $5,500 allowed during
the 2014-15 school year will see the monthly payment
after graduation rise by little more than $2.
more you borrow, though, the more you’ll feel the
amount of debt has a more significant impact on the
monthly payment than the change in interest rates,"
Kantrowitz said — something to keep in mind if you’re
starting a college search this summer and comparing
don’t have control over interest rates, but you do
over the amount you borrow," Kantrowitz said.