Interest Rates Expected to Spike on Student Loans

Photo (cc) by LendingMemo

Sorry, students, the cost of borrowing for college is going up. Federal student loan interest rates are expected to jump – by an entire percentage point or more.

The government began to peg new student loan interest rates to a type of bond that the Treasury Department sells, called the 10-year note. So the student loan rate is now based on the borrowing rate of the U.S. government. According to Bloomberg:

Stafford loans, the most widely borrowed, carried an undergraduate rate of 3.86 percent for the 2013-2014 school year. In the past three months, the 10-year yield has traded 0.80 to 1 percentage point higher than a year ago, which means education borrowing costs may rise.

Bloomberg noted that although “interest rates are fixed for the life of an education loan, borrowers take out a separate loan for each school year.” Interest rates for the school year beginning July 1 will be set after the Treasury’s 10-year note auction on May 7. The Consumer Financial Protection Bureau warned students about the potential rate hike and its consequences for borrowers last month.

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 10 years of repayment for each year they are in school, compared to this year’s rate.

Increased student loan interest rates equate to higher monthly payments for students when they’re through with school. Check out the CFPB’s interactive Paying for College tool to see what implications the rate hike could have for you.

This sounds like a lose-lose situation, both for borrowers and the U.S. economy. Federal loans reportedly make up most of the $1.2 trillion in outstanding student loan debt in the U.S.

According to The Huffington Post:

Amid an era of falling inflation-adjusted incomes for college graduates and increasing student debt burdens — total student debt has doubled since 2007, according to the Federal Reserve — a group of federal regulators, policymakers and student loan experts worry that the nation’s economy will be restrained for years as monthly student loan payments take an increasing bite out of borrowers’ paychecks.

Researchers have found that student loan borrowers are less likely to start small businesses, save for retirement, take out a home mortgage or buy a car.

Yikes. That doesn’t paint a very bright picture for the future, does it? Being saddled with student loan debt after graduating from college is a challenge. I know this from experience.

What are your thoughts on the expected hike for federal student loans? Share your comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Avoiding These 5 Foods Could Save Your Vision as You Age
Avoiding These 5 Foods Could Save Your Vision as You Age

Millions of Americans may be able to prevent an incurable cause of blindness by making a basic change.

Why Cutting the Cord Can Be Confusing — and How to Decide If It’s for You
Why Cutting the Cord Can Be Confusing — and How to Decide If It’s for You

Streaming TV might sound like the antidote to sky-high cable bills, but cutting the cord is easier said than done.

Stop Buying These 19 Things Online
Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

These Medicare Expenses Will Jump in January
These Medicare Expenses Will Jump in January

Some Medicare premiums and deductibles will take a bigger bite out of Social Security payments next year.

14 Products That Keep Foods Fresh Longer
14 Products That Keep Foods Fresh Longer

We’ve rounded up innovative Amazon purchases to lengthen the life of your favorite foods and beverages.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

The Next 5 Groups Who Will Get the COVID-19 Vaccine
The Next 5 Groups Who Will Get the COVID-19 Vaccine

The CDC has unveiled a schedule that likely will determine who gets the next doses.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?
Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.