Federal Student Loan Rates Rise Today
The cost of higher education continues to rise.
Starting today July 1, 2014 several types of federal student loans will cost more to student borrowers, as their interest rates are adjusted to reflect the higher borrowing costs of the federal government. This means that the new rates apply only to student loans taken out on or after July 1 of this year.In other words if you or your student is entering college this fall, this means you. At the same time, note that current law stipulates this rate is also scheduled to “adjust” each year on July 1. Thus you can look forward to yet another increase next year.
This event actually marks the first entire year that the market, and not Congress, determines the borrowing rate of federal student loans.
Interest rates on undergraduate Stafford loans taken out between July 1 and June 30, 2015 will jump up to 4.66 percent. Last year’s rate was 3.86 percent. This increase is for both subsidized and unsubsidized loans.
Graduate student loans and loans doled out to parents of college students will rise as well, despite already having higher rates.
The interest rate on unsubsidized Stafford loans for graduate students will now be 6.21 percent, up from last year’s 5.41 percent. Rates on direct PLUS loans, offered both to parents of college students and to graduate students, will rise to 7.21 percent. Last year’s rate was 6.41 percent.
None of these increased rates apply to loans given out in previous years.
Congress agreed upon the July 1 date for rate increases last year. If they had not changed the existing legislation, rates on undergraduate Stafford loans were set to double in 2013, from 3.4 percent to 6.8 percent.
To slow the rate of growth, Congress passed legislation tying federal student loan rates to bond yields on 10-year Treasury notes, with direct loan rates resetting every year on July 1.
The ever-rising rates will likely not stop any time soon. The Congressional Budget Office expects rates on Stafford loans to rise to 7.7 percent by 2018.
But there is at least a cap for the distant future. As part of their decision last year, Congress agreed to cap undergraduate Stafford loans at 8.25 percent, graduate Stafford loans at 9.5 percent, and direct PLUS loans at 10.5 percent
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