Update on Student Loan Rates

Update on Student Loan Rates
Eileen St. Pierre, The Everyday Financial Planner

This column updates my June 17 post Some Student Loan Rates Set to Double. Recall that on July 1, interest rates on subsidized Stafford Loans had doubled from 3.4% to 6.8%. This week both houses of Congress finally approved legislation to set the rates on student loans going forward. The fix is retroactive to July 1.

The legislation links the interest rates on student loans to the 10-year Treasury note plus 2.05% for undergraduates and plus 3.6% for graduate students. For this upcoming academic year, this works out to 3.9% for undergraduates (both subsidized and unsubsidized loans) and 5.4% for graduate students. Parents will pay 6.4% for PLUS loans. The rate is locked in for the academic year, with rates resetting each subsequent July 1.

As interest rates rise, so will the cost of student loans. However, to protect borrowers from severe spikes in rates, there are interest rate caps:

  • 8.25% for undergraduates
  • 9.5% for graduate students
  • 10.5% for parents

If the economy picks up, interest rates will rise and students will pay more for future loans, but they hopefully will find a job so they can make their payments. If the job outlook for college grads does not improve, lower rates will not help them much. Students just can’t seem to catch a break.

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