A hike in interest rates on new federal student loans is in effect, as of July 1. Although the increase is relatively small, it may be just the first of others to follow.
A bipartisan deal made by Congress and signed by President Barack Obama last year connects the rates to the financial markets. The interest rose from 3.86 percent to 4.66 percent on undergraduate Stafford loans. Graduate-student loans are up from 5.41 percent to 6.21 percent, and interest rates on Plus loans for parents jumped from 6.41 percent to 7.21 percent. Interest rates will not surpass 8.25 percent for undergraduates or 9.5 percent for graduate students. Parents’ borrowing costs are capped at 10.5 percent.
Under the new rate schedule, every $10,000 borrowed means the average borrower will pay back about $4 more every month when they start to repay the loans. The rates for new loans will be reset annually, but borrowers keep the rate they were given for the life of the loan. Because students take out new loans each year, they could be repaying different interest on different loans by the time they graduate.