Starting this fall, college-bound students will face higher interest rates on their federal student loans.
The interest rates on federal student loans have reached their highest level in the past ten years
According to the Federal Student Aid Office of the Education Department, undergraduate students with new direct federal loans will be subject to an interest rate of 5.5%, a rise from the previous rate of 4.99%. Meanwhile, graduate students will face a 7.05% interest rate, and PLUS loans will carry an 8.05% interest rate. These rates are fixed, meaning they will remain unchanged throughout the repayment period. However, it is essential to note that this increase will not affect those who already have existing loans.
These interest rates are determined based on the current high yield of the 10-year Treasury notes auction, in addition to an add-on percentage that varies depending on the specific loan and its recipient. To provide an example, NerdWallet highlights that a $31,000 loan with a 5.5% interest rate, repaid over a 10-year period, would cost nearly $50,000.
In comparison, three years ago, when the interest rate was 2.75%, the same loan would have amounted to around $39,500
For the upcoming 2023-24 academic year, the following interest rates will be applicable: 5.5% for direct subsidized loans and direct unsubsidized loans for undergraduates, 7.05% for direct unsubsidized loans for graduate and professional students, and 8.05% for Direct PLUS loans, which are available to parents of dependent undergraduate students as well as graduate or professional students.
College students and their families should take these increased interest rates into account when planning their finances for the upcoming academic year.
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