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Explainer: Federal student loan interest rates to jump

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Updated on May 7, 2014

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.

Updates

Updated on May 7, 2014:
Today, the Treasury Department released the rate for the ten-year note, which sets the interest rates for federal student loans. Interest rates on new federal student loans taken out between July 2014 and June 2015 will indeed be higher compared to last year’s rates. The actual rates are lower than the previous estimates noted above, which were based on Congressional Budget Office projections. The Department of Education will post the official interest rates, but here is a preview of the rates we expect:

Loan type New interest rate on loans taken out between July 2014 and June 2015
Direct Subsidized and Unsubsidized Loans (for undergraduate students): 4.66%
Direct Unsubsidized Loans (for graduate/professional students): 6.21%
Direct PLUS Loans (for parents and graduate/professional students): 7.21%

The Perkins Loans interest rate for undergraduate and graduate/professional students remains fixed at 5 percent.

  • http://www.dadiehost.com/ Dadie Host

    Premium rates on most elected scholar credits are dependent upon a certain kind of security that the Treasury Department issues, known as the ten-year note. The yield is the rate at which speculators charge the central government for acquiring cash. One month from now, there will be a Treasury security closeout, and that rate will set elected learner advance premium rates.

    This part is really informative.

    • quietmilk

      Also a short explanation of why the US monetary system is corrupt

  • Jennifer Peter

    If you want an educated populace then stop using our students as an income stream. Absolutely ridiculous. If you want us all to be peasants then continue on.

  • Storewars News

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  • Anthony Swarringin

    At what point should we begin mass protests as students? Why did rates go up so much after 2006?

    I also love the fact that every government website shows rates beginning after 2006, to make their current rates look normal. The generation using our students as a cash cow is the same generation that expects us to buy health care in order to lower their own monthly premiums and the same generation that ruined our economy in the first place. Wow. Unbelievable.

  • WSAY

    Student loan rates should be the same as the rates provided by the government to banks. The fact that banks get these great rates while students get screwed says a lot.

  • Della

    In regards to your question. My little advice is that you go to a bank in your area to request for the loan, and that is if you have a collateral, but if you want a loan from those that give out unsecured loan without a collateral i know of a loan firm that gives out unsecured loans, though he is the only one i have tried for now so i don’t really know if their interest rate is the lowest. Few months ago when i had a bad credit, a friend of mine introduced me to them, inspite of my bad credit they were able to lend me a loan of $20,000 of which i used to revive my business, I think you too can do the same as well. Here is their contact information if you wish to contact them. (hai_ying43@yahoo.com)
    Regardless of your nationality, i am sure they can be of help to you.
    Good Luck,
    Della Roland.

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