youíre heading off to college, prepare to dig a little
deeper into your pockets. Borrowing money to pay for
higher education is becoming more expensive.
July, interest rates will climb on the federal loans
students take on to pay for college this fall. Rates on
undergraduate Stafford loans are jumping to 4.45
percent, from the current 3.76 percent. Graduate
students with Stafford loans are going to face a rate of
6 percent, up from 5.31 percent. And parents and
graduate students borrowing with federal Plus loans will
face an interest rate of 7 percent, instead of this yearís
the bump in interest rates is not huge, students in
college during the next few years are likely to face
more increases. Interest rates have been at historically
low levels, and economists are expecting rates to keep
climbing in 2018 as the economy strengthens.
to avoid the increase by quickly borrowing before July
wonít solve anything, said Mark Kantrowitz, publisher
of Cappex.com, a college search and student loan site.
Borrowing for the 2017-18 school year has to be at the
new rates and those rates will apply from July 1 to June
undergraduate students, the increase will add $3.29 a
month for every $10,000 they borrow, assuming the loans
are repaid in 10 years, which is a typical repayment
the new loan rates wonít take effect until July, the
formula used by the Department of Education makes it
clear what the new rates will be. The federal student
loans rates are tied to the rates on 10-year U.S.
Treasurys auctioned in May. Those rates were up 0.69
percent this May, compared with 2016.
the higher student loan rates, an undergraduate student
will pay about $395 more in interest over 10 years on a
$10,000 loan, a graduate student with Stafford loans
will pay $412 more, and parents with Plus loans will pay
$423 more, Kantrowitz said.
average undergraduate student who leaves college with
loans has about $30,000 in debt. Itís not unusual for
graduate students to take on $100,000 or more in debt.
President Donald Trumpís budget recommendations are
passed by Congress, the pain could be intense for
graduate students, Kantrowitz said.
the proposals, graduate students would no longer be
relieved of their student debt the way borrowers have
been under the Obama administration. Under President
Barack Obama, the government instituted an income-based
repayment plan, which allowed people to reduce their
monthly student loan payments if their incomes werenít
high enough to cover the full cost.
addition, after 20 years of paying off student loans,
any remainder left on the loans was to be forgiven. But
under the latest Trump plan, graduate students would
have to keep paying off their loans for 30 years.
assumption under the Trump plan seems to be that
graduate students typically have good salaries after
finishing their education and can afford to pay, but
Kantrowitz said the same rules would apply to graduate
students regardless of the salary their intended field
you want to be a social worker under these
conditions?" he said.
students would come out better. The Trump proposal would
free them of their student loan debts after they devoted
12.5 percent of their discretionary income to the loan
payments for 15 years. Currently, they have to devote
only 10 percent of discretionary income to repayment,
but they must do so for 20 years.
changes in the Trump budget would cut out subsidies for
low- and moderate-income students. With the subsidies,
the government steps in and pays interest on the loans
while a low- or moderate-income student is still in
college or after college if thereís a period when a
borrower is temporarily not working. Without the
subsidies, students with Stafford loans are freed from
paying interest while in school, but the extra interest
is tacked onto the end of the loan and must eventually
is worried that the cuts will make some low-income
students reluctant to go to college.
another cut would focus on public service jobs.
Currently, college graduates can be relieved of their
student loans if they take jobs such as public
defenders, doctors in rural areas, military or teachers
for disadvantaged students. First they must make
payments for 120 months.
all the Trump proposals are merely proposals at this
point and will not be enacted unless Congress approves
is definite at this point is that interest rates on
federal student loans will increase in July and probably
again in 2018. And with benefits like income-based
repayment still intact, students will be better off
borrowing through the federal student loan program; even
with higher rates. Although banks and private lenders
might offer lower introductory interest rates, the rates
typically donít stay low indefinitely and they donít
forgive loans or lower monthly payments if a graduate is
in financial distress.