Federal student loan rates rise in July – The Washington Post | Vette Leader

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It’s getting more expensive to borrow money for college because interest rates are new Federal student loans will rise this summer with the largest percentage jump since 2013.

While experts say the cost of borrowing won’t deter many families who need debt financing to afford college, higher interest rates could have a lasting impact on their wallets, especially for large loan amounts.

Federal student loan interest rates are set to rise more than a percentage point due to the Treasury Department’s auction of 10-year notes on Wednesday. It was widely expected that interest rates on new federal student loans, which take effect on July 1, would spike as Treasury yields have risen in response to the Federal Reserve’s rate hikes.

Although gloomy predictions If a larger increase is not exactly accounted for, there will be a marked difference in credit costs for the 2022-2023 academic year. Undergraduate students pay 4.99 percent interest on new Stafford loans, up from 3.73 percent. For graduating students and parents who are taking on federal debt to help their children get college education, the interest rate on new PLUS loans will increase from 6.28 percent to 7.54 percent.

The new interest rates only apply to loans taken out to pay for the 2022-2023 academic year and will not affect existing student debt.

Since many families have to borrow money each year to cover college expenses, annual rate hikes could be costly in the long run. Graduate students could bear the brunt of the impact due to the large debt they incur. Unlike student loans, which are capped from year to year, graduate students can borrow up to the full tuition fee.

In fact, the vast majority of outstanding student debt stems from graduate studies, fueled by steady enrollment over the past decade. Graduate programs account for 40 percent of federal student loans issued each year, with borrowing increasing by $2.3 billion from the 2010-2011 academic year to the 2017-2018 academic year. By comparison, undergraduate borrowing fell by $15 billion during that period, according to the National Center for Education Statistics.

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“If you’re a grad student borrowing tens of thousands of dollars a year, this is it [rate increase] is more consequential than for a freshman when the most you can borrow is $5,550,” said Jason D. Delisle, senior policy fellow in the Center on Education Data and Policy at the Urban Institute.

He noted that while the percentage increase in government student loans is the highest in nearly a decade, the actual rate on student loans is close to where it was in 2018. The difference, Delisle said, is that rising interest rates may now seem more due to consumer concerns about inflation.

Student loan interest rates, which may rise or fall from year to year, are based on the government bond rate plus a fixed margin. Congress set a cap to keep federal student loans from becoming too costly. The interest rate for bachelor’s loans can never be higher than 8.25 percent. Graduate loans are capped at 9.5 percent, while the limit for PLUS loans — for eligible parents and college graduates and professional students — is 10.5 percent.

Last but not least, rising interest rates on federal student loans should force students to be more careful about how much they borrow, especially for advanced degrees, said Lynn O’Shaughnessy, a financial aid expert and author of The College Solution. ”

While using debt to fund higher education can be an investment, there are rules of thumb to follow so as not to erode returns, she said. It still holds true that students at any stage of their post-secondary education should not borrow more than they can reasonably earn in their first year after graduation, O’Shaughnessy said.

“What are you borrowing? What is the return on investment for the course? You have to pay more attention to the overall cost because the stakes are higher on college costs these days,” she said.

White House officials are weighing income limits for student loan forgiveness

As the debate over sweeping student debt relief intensifies, reforms to the federal credit system have been largely banned from the conversation. Federal education debt has greater consumer protections and fewer eligibility criteria than private loans. But critics say processing fees, which can be as much as 4 percent of the amount borrowed, and unlimited borrowing are onerous for parents and graduate students.

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