Student Loans Are About to Get More Expensive

Student Loans Are About to Get More Expensive

While college students are just starting to recover from finals week, those returning to campus in the fall already have some not-so-great news ahead of them: The U.S. government is raising student loan interest rates for the 2017-18 academic year.

Rates will affect undergraduate students, graduate students and parents of students taking out loans from the Department of Education beginning July 1, 2017.

The New Federal Student Loan Interest Rates for the 2017-18 Year

Undergraduates: 4.45%, up from the current 3.76%
Graduate students: 6%, up from the current 5.31%
Graduate students and parents with PLUS loans: 7%, up from the current 6.31%

Though these upticks of less than a percentage point may seem small, they can translate to borrowers paying hundreds of dollars more in interest over the life of their loan. Take this example from Money: "A student who borrows $5,500 for a year of college would pay $220 more in interest with this year's rate compared to last year's, based on a 10-year repayment timeline."

The Washington Post also calculates that a grad student taking on a new $20,000 Direct loan in the next year will pay an extra $833 in interest over 10 years; parents taking out a $10,000 PLUS loan can expect to pay $423 more.

It's important to note that these rates affect only loans taken out for the 2017-18 year and are set for the lifetime of the loan until it is paid off (unless the borrower chooses to refinance under a different interest rate). Fixed rates for student loans taken out in previous years will remain the same. In other words, it's not uncommon for a student with multiple loans taken out in different years to have several interest rates to work with.

The increases, set at a Treasury Department auction Wednesday, have been anticipated after the Federal Reserve's raising of benchmark interest rates following indications of healthy U.S. economic growth.

Whether rates will continue to increase from its current historic lows remains to be seen, but the silver lining is that increases don't necessarily happen every year — the last uptick happened back in 2014, and Congress set a ceiling to cap undergraduate loan rates at 8.25%, graduate loans at 9.5% and PLUS loans at 10.5%.

RELATED: The 1 Trick to Paying Down Your Student Loans Faster


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