Federal student loan interest rates rise in July | Companies
Students entering college in the fall pay higher interest rates than last year on the money they borrowed to raise money for education.
According to analysis by financial aid expert Mark Cantrowitz, federal student loan interest rates for the next school year will rise nearly 1 percentage point on July 1 after falling for several years.
Still, undergraduate loan interest rates hit record lows for the 2020-21 academic year. As a result, interest rates are rising, but “still very low,” he said.
Federal student loan rates were pegged to 10-year treasury bills at the May auction, and government bond rates have risen since the worsening pandemic.
According to Kantrowitz’s calculations, the interest rate on direct loans to undergraduate students will rise from 2.75% to 3.73%. Three years ago that rate was a little over 5%.
The new rate will increase the 10-year loan rate by $ 549 per $ 10,000 borrowed, or $ 4.58 per month, Cantrowitz said.
Interest rates are rising amid a national debate over whether to cancel some student loans to help borrowers in need.
President Joe Biden supports the repayment of federal debt of up to $ 10,000 per borrower, and other Democrats are seeking wider bailouts. However, are debts canceled? Student debt experts advise students not to rely on it when considering the amount of debt as it is unclear whether.
“Caution is always the best approach to student loans,” said Persis Yu, director of the Student Loan Borrower Assistance project at the National Consumer Law Center.
She said students considering borrowing from next year should consider why student debt has become such a hot topic. According to Pew Charitable Trusts, more than a million college students are criminal in federal student loans each year.
Natalia Abrams, general secretary of Student Loan Crisis, a group working to change university credit policy, recommended that students “always borrow as little as possible”.
The reality, however, is that many students cannot avoid borrowing money for College, a nonprofit committed to making college more affordable, the College Access & Success Institute for College. Michelle Streeter, Senior Policy Analyst at Access & Success, said. It is estimated that the average cost of attending a four-year public university as a student in the state is currently less than $ 27,000 per year for tuition, room, food, and other costs, but the average cost after grant. The cost of the college board is approximately $ 19,500.
And there’s a good reason to borrow something. College graduates with a four-year degree tend to earn much more over their lifetime than workers with a high school degree.
(Starts optional trimming.)
Students in need of borrowing should focus on federal loans and try to borrow the maximum amount of federal loans they can tolerate before considering private loans from banks and other nongovernmental lenders, Streeter said. Said. Personal loans are usually more expensive and do not provide consumer protection related to federal loans, such as federal loans. B. a repayment plan tied to the borrower’s income and a deferral option in the event of a borrower’s financial difficulties.
Nearly two-thirds of students who graduated in 2019 have student loan debt averaging $ 29,000. This comes from a student debt project, an initiative of the Institute for University Access. I’m going. This is a slight decrease from the 2018 average, and the project says the trend towards “relatively flat” student debt has continued over the past few years.
However, the pandemic has turned many aspects of higher education upside down, and it remains uncertain whether the surge in student debt will restore the country to normal, the Student Debt Project reported last year.
(Exit optional trimming.)
The U.S. Department of Education has not officially announced interest rates on new student loans, but Cantrowitz uses government formulas to calculate them and add fixed interest rates based on the type of loan.
The interest rate on direct loans to PhD students will be increased from 4.3% to 5.28%. The interest rate on plus loans, which are additional loans for parents and doctoral students, will be increased from 5.3% to 6.28%.
The new rates do not apply to private student loans.
Here are some questions and answers about student loans:
Q: Can I borrow a loan now for the next year to lower interest rates?
On a. New federal student loan interest rates are set for each academic year beginning July 1, according to a formula established by Congress. Loans are issued through the university based on the information provided in the FAFSA (Federal Student Assistance Free Application).
This price increase does not affect the interest rates on student loans already borrowed. Once the interest rate is set on the loan, it is set for the duration of the loan.
Q: How much can I borrow?
A: There is an annual and total limit on how much a student can borrow on a federal loan. Generally, relatives can borrow up to $ 5,500 in the first year and up to $ 6,500 in the second year. For the 3rd and 4th years, the limit is $ 7,500. The total limit is $ 31,000, which is in excess of the total annual limit in case a student takes more than four years to graduate. The limit is higher for independent undergraduate and graduate students.
Q: When does the current student loan suspension end?
A: In March 2020, as part of the government’s pandemic relief program, Congress allowed most federal student loan borrowers to temporarily suspend monthly payments and to set the loan interest rate to zero during the suspension. Has. The suspension has been extended several times, most recently by the Biden administration earlier this year until at least September 30. Some borrower supporters support another extension, but it is unclear whether this will happen. is not it.
So-called unsubsidized loans are usually interest-bearing while the borrower is attending college. As part of a rescue plan, the interest on these loans “even at school” is temporarily zero. Will be.
Temporary zero interest rates are unlikely to have a significant impact on loans granted after June 30, Streeter said. If there were a zero interest “short time frame” ahead of the scheduled October 1 repayment, the impact would likely be negligible, she said.