Interest rates on new federal student loans will rise nearly 1% starting in July. Here’s what borrowers need to know
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The interest rate on new federal student loans is increasing.
The government sets annual interest rates on the debt once a year, and the percentage is based on the 10-year Treasury bill.
Despite the increase, the rates remain low by historical standards, said university expert Mark Kantrowitz.
Although the U.S. Department of Education has not officially announced the new rates for the 2021-2022 academic year, Kantrowitz has calculated the expected new numbers. Kantrowitz estimates that federal student loan interest rates will rise 0.98%.
“It’s the fourth lowest interest rate in the last decade,” he said.
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And because of the pandemic, the interest rate on most federal student loans was zeroed through September.
Here’s what you need to know about the change:
As the federal student loan rate will rise 0.98%, the rate on new Stafford student loans will rise from 2.75% to 3.734% in the 2020-2021 period. This increases monthly loan payments for a 10-year repayment period from $ 95.41 to $ 99.99 for every $ 10,000 of debt borrowed that academic year, according to Kantrowitz.
Kantrowitz expects Stafford graduate loans to come with an interest rate of 5.284%, compared to 4.3% now. That would Increase monthly loan payments for 10 year repayment Maturity at $ 107.46 from $ 102.68 per $ 10,000 borrowed debt, he noted.
Finally, he expects PLUS PhD and Parent Loans to have an interest rate of 6.284%, an increase of 5.3%. As a result, monthly loan payments will increase from $ 107.54 for every $ 10,000 of borrowed debt to $ 112.45 for a 10-year term, Kantrowitz said.
Who is affecting it?
All federal educational loans granted after July 1, 2021 are subject to the new interest rates.
You cannot try to avoid the rate hike by borrowing before this deadline. Loans for the 2021-2022 academic year must be taken after July 1st.
Don’t worry about any loans you’ve taken out in recent academic years: federal student loan rates are fixed and the rates on existing loans do not change.
The tariff changes only apply to federal student loans. Private loans have their own – often higher – interest rates.
How much will you owe
Borrowers can use Kantrowitz’s calculator on his website to enter their loan details and see what they will end up owing.
He advises students not to borrow more than they expect in their freshman year. The average starting salary is $ 50,000, although there is a wide range between professions.
What if Student Loans Are Made?
President Joe Biden has said he will support student loan facilities of $ 10,000 per borrower. Currently, reports from the U.S. Department of Education and the Department of Justice are pending as to whether the president has legal authority to cancel the debt without Congress.
Forgiveness has never been more likely to occur. “You can’t rely on anything until the laws are signed,” said Kantrowitz.
“Students shouldn’t borrow more than they need in anticipation of the debt cancellation,” he added.