Title

Interest Rates on Federal Student Loans Set to Rise

May 8, 2014
 

The cost of borrowing money from the federal government to pay for college will increase in the coming academic year.

Interest rates on most federal student loans are now set to rise following Wednesday’s sale of 10-year Treasury notes, the government debt to which rates are tied.

The interest rate on new loans for undergraduate students will increase to 4.66 percent, up from the current 3.86 percent. The cost of new direct loans for graduate students will jump to 6.21 percent from the current 5.41 percent.

A bipartisan accord struck in Congress last year pegged the interest rates on federal student loans to the government’s borrowing cost. The government now sets student loan interest rates each year based on the last auction of Treasury 10-year notes prior to June 1.

Loans disbursed starting July 1 will reflect the new rates, which are fixed for the term of the loans. The interest rates on existing federal direct loans are not affected by the changes, though some Democrats in Congress this week said they were pushing legislation that would allow borrowers to refinance their existing loans at current rates.

The following are current and future rates for student loans issued by the U.S. government:

 

Current-Year Rate

(2013-2014 AY)

New Rate

(2014-2015 AY)

Undergraduate Direct Loans

(Subsidized & Unsubsidized)

3.86%

4.66%

Graduate Direct Loans

5.41%

6.21%

Direct PLUS Loans

(Grad PLUS & Parent PLUS)

6.41%

7.21%

 

 
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