Student loans will cost more next school year

Student loans will cost more next school year
Eileen St. Pierre, The Everyday Financial Planner

The Federal Reserve has started raising interest rates again. What does that mean for student loans? In August 2013, Congress passed legislation pegging the interest rate on Direct loans to the 10-year Treasury note. Every July 1, student loan rates are updated.

student loan pictureIf you take out a student loan for the 2017-2018 school year,

  • The interest rate on a Direct (Stafford) undergraduate loan will be 4.45%, up from 3.76%.
  • The interest rate on Direct (Stafford) loans for graduate students will be 6%, up from 5.31%.
  • The interest rate on Direct PLUS loans for parents and graduate students will be 7%, up from 6.31%.

These are fixed rates, so once you accept the loan, the rate is set.

  • This means that rates on your existing student loans will not change.
  • If you take out a loan for the 2017-2018 school year, these rates only apply to those loans.
  • However, if you need to take out another loan in future years, you may have to pay even more. The Federal Reserve is expected to keep raising interest rates.

For one $10,000 loan repaid in 10 years, this increased cost will probably be less than $500 over the life of the loan. That’s not too bad. What makes it a bad deal is if you keep taking out loans and/or take too long to pay the loan back.

That’s when you need some strong financial guidance to understand what you are getting yourself into before signing the loan papers. Visit my post K is for Knocking Out Student Loans for information on different repayment plans, how to pay off your loans faster, and the consequences of defaulting on your loans.

More information can be found at my College Planning page.