I’ve heard that the interest rates on federal student loans will be increasing on July 1, 2014. What will the new rates be? Can I somehow lock in the current lower interest rates?
Interest rates on Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS Loans are fixed rates that change each July 1 based on the last 10-year Treasury rate auction in May. The current rates for the 2013-2014 award year are 3.86% for undergraduate Direct Subsidized and Unsubsidized Loans, 5.41% for graduate Direct Subsidized and Unsubsidized Loans, and 6.41% for Grad PLUS Loans and Parent PLUS Loans. These interest rates will be increasing on July 1, 2014 by 0.80%. The new rates for the 2014-2015 award year will be 4.66%, 6.21% and 7.21%, respectively.
This corresponds to an increase in the monthly loan payments on a 10-year term of about $4 for every $10,000 borrowed, or about $46 to $49 a year.
Total costs will increase by $460 to $492 over the 10-year repayment term of the loans.
Unfortunately, there’s no way to borrow loans now for the fall based on the current low interest rates. Interest rates are set based on the date the loan is disbursed. Federal education loans cannot be disbursed more than 14 days before the start of the academic year. Also, some colleges are required to delay the disbursement by 30 days for first-time, first-year borrowers. So, unless the academic year starts before July 1 or soon afterward, students are unlikely to be able to borrow early enough to lock in current rates for the fall.
If a current college student has remaining federal loan eligibility for the award year that ends June 30, 2014, he or she could borrow to the limit under the current rates before July 1 and save the money to pay for next year’s college costs. But, most students will have already exhausted their eligibility for Direct Subsidized and Unsubsidized Loans for this award year.
The interest rates on federal education loans are likely to continue increasing each year over the next several years by 0.75% to 1.50% per year.
Copyright © 2016 by Edvisors.com. All rights reserved.