Federal Student Loan Interest Rates Increase July 1st

money bar graph increasing over timeIf you are considering taking out a federal student loan, take note that interest rates are set to increase on July 1, 2014. Before you panic, the experts are saying that federal loans still remain a good deal for students.

If you already have federal student loans, the interest rate increase will not impact your loan. The higher rates will only affect loans disbursed on or after July 1st. For new loans, the rates will be as follows:

  • Stafford loans for undergraduates will increase from 3.86% to a fixed 4.66%
  • Stafford loans for graduate students go from 5.41% to a fixed 6.21%
  • PLUS loans will jump from 6.41% to a fixed 7.21%

Although your interest rate on a federal student loan is fixed for the entire term of the loan, the cost of debt in future years could still jump higher. Congress passed legislation in 2013 that linked federal loans to the 10-year Treasury note, resetting every July 1st . Thus, without the new law, rates last year would have doubled.

The problem is that Treasury rates are now rising. As the Treasury rates increase, it impacts the cost of borrowing student loans. In fact, student loan rates could reach 7.05% by 2018 according to projections by the Congressional Budget Office.

While federal student loans are still the best option for individuals who must borrow money to pay for their education, higher interest rates only add to the amount you must repay when you graduate. The good news is that federal student loan interest rates are capped (8.25% to 10.5% depending on the loan) and the government provides a wider variety of repayment options for graduates.

While this interest rate hike is fairly manageable, it is important to remember that the more you borrow, the more it will impact you. Thus, when you take out your student loan, be sure to limit the amount to only what you truly need. You will thank yourself for being frugal when you graduate.

Please keep in mind that every student loan matter is different. If you have questions about your student loan debt or you are struggling to make your student loan payments, and you would like to schedule a no-cost consultation to discuss your options, please contact our office by completing the form on this website or calling us at (954) 280-5066.

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