Students who need to borrow from the federal government to pay for college this fall will get hit with significantly higher interest rates. And the financial burden on lower-income students could increase even more if Congress approves President Donald Trump's plan to eliminate subsidized student loans.
The new interest rates on loans for the upcoming academic year are expected to be:
- Stafford Loan - undergraduate: 4.45 percent, up from 3.76 percent
- Stafford Loan - graduate students: 6 percent, up from 5.31 percent
- Parent PLUS loans: 7 percent, up from 6.3 percent
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These are fixed rates that apply to new loans made between July 1, 2017 and June 30, 2018. The rates on existing loans will not change. And unfortunately, you cannot take out loans for the new school year at current rates.
Note: The federal government has not officially announced the new rates. Student loan experts have calculated the change using the Department of Education's formula which is based on the rate of the 10-year Treasury note.
"The rates are going up because the Federal Reserve has started raising interest rates at a regular pace and we can expect that they'll continue to go up," said Mark Kantrowitz, the publisher of Cappex, a website that helps families search colleges and the scholarships. "I wouldn't be surprised if we see an increase in the federal student loan interest rates each of the next few years of between half and three-quarters of a percentage point."
Interest rates on federal student loans have been historically low for many years now. This is the first increase since 2014. An undergrad who borrows $10,000 at the new interest rate would pay an extra $3.29 a month or $395 more in interest over 10 years, according to the student loan calculator at NerdWallet.
"This small jump in the interest rate of the loan is not going to be a deal breaker for most students," said Penelope Wang, deputy money editor at Consumer Reports. "The bigger problem is the overall student debt in the U.S. and this certainly does not make the situation any better."