An official website of the United States Government Español
  • Home
  • Student loans

Student loans

Explainer: Federal student loan interest rates to jump

By

Right now, many students and families across the country are receiving financial aid offers and deciding how to pay for college. Most students will need to shop for student loans now, and some of you have asked us what the new rates will be. While rates aren’t set in stone yet, interest rates on new federal student loans are expected to jump this July.

We’ve updated our Paying for College tool using our best guess of what the rates will be, so you can have a better estimate of what your monthly payment might be after graduation.

Interest rates on most federal student loans are based on a certain type of bond that the Treasury Department issues, known as the ten-year note. The yield is the rate at which investors charge the federal government for borrowing money. Next month, there will be a Treasury bond auction, and that rate will set federal student loan interest rates.

Here’s what federal student loan interest rates on new loans might look like, compared to this past year.

Current and estimated interest rates on federal student loans

Loan type Interest rate on loans taken out between July 2013 and June 2014 Estimated new rate on loans taken out between July 2014 and June 2015
Direct Subsidized and Unsubsidized Loans (for undergraduate students) 3.86% 5.09%
Direct Unsubsidized Loans (for graduate/professional students) 5.41% 6.64%
Direct PLUS Loans (for parents and graduate/professional students) 6.41% 7.64%

Higher rates will mean a higher monthly payment after graduation. You can simulate this on your own by using our Paying for College tool, but here’s a quick summary of the changes.

Estimated monthly payment for every $5,000 in balances entering repayment

Loan type Monthly payment for this year’s rate Monthly payment for next year’s rate (estimated) Total increase over ten years
Direct Subsidized and Unsubsidized Loans (for undergraduate students) $50.29 $53.25 $355.49
Direct Unsubsidized Loans (for graduate/professional students) $54.04 $57.13 $370.84
Direct PLUS Loans (for parents and graduate/professional students) $56.55 $59.72 $380.59

Yet many students end up borrowing more than $5,000 for their education. For instance, graduate students borrowed an average of approximately $18,600 in PLUS Loans per year, according to the National Center for Education Statistics. With interest rates set to go up, many graduate students who borrow after July will pay an additional $1,400 over ten years of repayment for each year they are in school, compared to this year’s rate.

We’ll be sure to update these rates in our tool once they’re finalized. In the meantime, you should use your Financial Aid Shopping Sheet and our Paying for College tool to help you figure out how your school choice might impact your loan payments after graduation.

Rohit Chopra is the CFPB’s Student Loan Ombudsman. To learn more about the CFPB’s work for students and young Americans, visit consumerfinance.gov/students.

Choosing a college is a big deal. We can help!

By

This month, students across the country will receive college acceptance letters. For many people, the excitement of being one step closer to realizing their dream or reaching a major life milestone is coupled with anxiety about how to pay for it and the prospect of taking on student loan debt.

Compare your financial aid offers now.

To help you navigate these new waters, we’ve just launched a crisp new version of our Paying for College tool kit. Making apples-to-apples comparison of your financial aid offers has never been easier. Now you can compare offers from community college, bachelor’s, certificate, and graduate programs. We’ve incorporated a more user-friendly design and reintroduced the GI Bill calculator, which gives servicemembers the ability to calculate the benefits available to them through the GI Bill and tuition assistance programs.

We also heard from you that you wished our tool would provide information that complemented what schools are providing to students in their financial aid packages. We’re currently piloting a way to do just that. More than 2,000 schools have adopted the Financial Aid Shopping Sheet (developed in partnership with the Department of Education), which they’ll send to prospective students this year. Using this shopping sheet, you’ll be able to compare information, like average debt after graduation, side by side. If you don’t have a financial aid offer, we’ll show you where to find cost info for each school.

If you’re considering student loans to help you pay for school, you’re not alone – many students need loans to cover their full cost of attendance. If you have to take out student loans, comparing your options can help you find the student loan best suited for your needs.

We’re excited for your new adventure, and we know that choosing a college is a big deal.

Oh, and — congratulations!

We’re protecting students from predatory lending

By

Today, we filed a lawsuit against ITT Educational Services, Inc., accusing the for-profit college chain of predatory student lending. We believe that ITT used high-pressure tactics to push many students into expensive private student loans that were likely to end in default.

This is our first public enforcement action against a company in the for-profit college industry.

“Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics,” said Director Richard Cordray.

You can read the press release, read Director Cordray’s full remarks, and view the formal complaint against ITT.

You can also watch a recording of today’s press conference.

What sunshine for student financial products can show us

By

Recently, we alerted financial institutions about the potentially risky practice of not readily disclosing arrangements with colleges and universities to market bank accounts, prepaid cards, debit cards, and other financial products to students. Director Cordray called on financial institutions to voluntarily make these agreements available on their websites.

According to a survey of school officials, 69 percent of debit card agreements are already available to the public, since many contracts with public colleges and universities are subject to state open records laws. We identified agreements available in the public domain by checking state open records databases and other websites where agreements were disclosed.

Some financial institutions offer low-cost student financial products as a way of developing long-lasting relationships with students as they start their financial lives. For example, one credit union told us that “over 85 percent of student accounts remain open one year following graduation.” But other financial institutions generate a significant amount of their revenue on these products while students are currently in school.

Here’s how they work

Some of these agreements were difficult to find, but here are a few examples of the different agreements financial institutions have with colleges and universities. We didn’t verify whether these agreements are current, but the examples give us a sense of how some of these agreements work.

1. Direct payments for using school logos

We found several agreements where a financial institution offers a licensing fee in order to use a school’s logo to market its financial products. (In 2008, Congress restricted this practice for student loans, but not for other financial products.) For example, we found an agreement which provides $25 million to a university for use of the school’s logo, among other benefits.

2. Bonuses for recruiting students

Other agreements provide bonus payments based on whether students sign up for a financial institution’s student checking account marketed on campus. For example, one agreement paid a university an upfront payment of $400,000 and an additional bonus of upwards of $200,000 each year if enough new students signed up for the accounts.

3. Discounted prices in exchange for marketing access

Some colleges receive discounted – or even completely free – services in exchange for allowing a provider to market financial products to students. For example, we found many agreements where a financial institution charges a university to transfer loan and scholarship funds to students.

However, some school officials have told us that these charges may be heavily discounted, since these agreements provide the financial institution with unique access to market to students receiving financial aid. This gives the financial institution a foot in the door to generate significant revenue in fees from students, making it worthwhile to provide discounted services to schools.

Committed to transparency?

Many financial institutions offer good products at competitive prices. But as we’ve stated before, voluntarily disclosing these arrangements is a sign of a financial institution’s commitment to transparency when marketing deposit accounts, prepaid cards, financial aid disbursement accounts, and other financial products to students. In doing so, they also want to make sure students know that they have a financial relationship with their school. Responsible financial institutions also want students to know they don’t have to choose their product if they don’t want to.

Actions you can take

Students, schools, financial institutions, or anyone else who wants to share information about the availability of these agreements can email us.

If you are a student, or family member of a student, you can check out our guide to Managing Your College Money and our consumer advisory on accessing student loans and scholarships.

If you have a complaint about a student loan, checking account, or credit card, you can submit a complaint online or by calling (855) 411-2372.

Helping student loan borrowers stay afloat

By

This morning, CFPB Director Richard Cordray, Education Secretary Arne Duncan, and Acting Deputy Treasury Secretary Mary Miller convened a meeting with the nation’s largest private student lenders and servicers who work with millions of borrowers and their families.

Unfortunately, too many student loan borrowers are struggling. According to a report we published jointly with the Department of Education, there were more than 850,000 private student loans in default, with even more in delinquency.

Unlike federal student loans, private student loans generally lack flexible repayment options when borrowers run into trouble.

We’ve received thousands of complaints from private student loan borrowers. The most common complaint comes from those who are unable to negotiate a repayment plan that they can actually afford. Many of you have told us that you want to pay back your loan, but you just need a payment plan that works for you, especially when you haven’t yet found a full-time job in a tough market.

Many of the financial institutions represented in today’s meeting received extraordinary assistance from federal government programs when they faced their own financial distress. We were very encouraged to hear that many of them are launching initiatives this year to help their customers weather the storm and get back on their feet.

In the meantime, we’ll keep working to help you find a way to make ends meet. To learn more about your options when repaying private and federal student loans, check out Repay Student Debt. Still need help resolving a student loan issue? Submit a complaint.

Borrowers need more options to avoid default, which is in the best interest of borrowers, financial institutions, and the economy more broadly. We’ll be monitoring this market closely to determine whether or not financial institutions are making progress.

Rohit Chopra is the CFPB’s Student Loan Ombudsman.

Updated at 1:55 p.m.to reflect that Ms. Miller attended on behalf of Treasury Secretary Jacob Lew.

Tell us how you tackle your student debt

By

A number of recent graduates have asked us: why is my student loan interest rate so high? And how can I more quickly pay off this loan?

Often borrowers have several loans at different interest rates. If you’re looking to reduce the amount of interest you pay each month, you’ll want to look into whether you can refinance your student loans – but there are relatively few options out there. Another option is to make extra payments toward your loans, which can save you a lot of money, especially when you direct those payments toward the individual loan with the highest interest rate.

However, many of you have told us about problems you face when trying to tell your student loan servicer what to do with your extra payments. Some of you also have told us that you’ve had a hard time getting a straight answer about these payment processing policies.

Tell us your story.

What advice would you give to borrowers just beginning to repay their loans? What worked and what didn’t work? Be sure to include the tag “student loan” with your story. Your story can help us build better tools for student loan borrowers and help borrowers that run into trouble.

For example, some of you have told us that you provide instructions in the “memo” field of your check or through an online “bill pay” service. You’ve also told us that you’ve called your student loan servicer in advance to let them know that your employer might be making a payment on your behalf and you want the payment applied in a certain way. Sometimes this works and sometimes this doesn’t.

Tell us what worked for you.

We’ve also asked student loan servicers to tell us about their policies for handling extra payments, so that we can keep building tools to help you tackle your debt more quickly. And as a reminder, it is unlawful for student loan servicers to charge you penalties or fees for prepaying your student loan.

If you need help today, check out our Repay Student Debt tool to figure out your options, especially if you can’t make your payment. You can also submit a complaint or Ask CFPB.

We look forward to hearing from you!