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Rates on Student Loans Will Go Up

Rates on Student Loans Will Go Up
Written by Publishing Team

The interest rate on federal direct Stafford loans for undergraduate students will rise to 3.73% on July 1, nearly a percentage point higher than the 2.75% rate for loans issued for the 2020-21 academic year, according to an analysis by Mark Kantrowitz, A.D. Student loan expert and author How to request more financial aid for college.

Federal student loan interest rates are tied to 10-year Treasuries, which have been gradually going up. Federal student loan rates are still much lower than they were a few years ago.

New federal loan rates are set for the life of the loan, so borrowers who took out loans at higher rates cannot refinance a federal loan at a lower new rate. Borrowers with good credit may be able to reduce payments by refinancing with a private student loan. However, even if that’s an option, it’s best to wait until after federal loan payments are paused and interest expires on September 30, Kantrowitz says.

The rate of PLUS loans, available to parents and graduate students, is expected to increase from 5.3% to 6.28%. At this rate, refinancing into a private loan offers a greater potential for savings.

Kantrowitz says borrowers need to understand the trade-offs. Federal loans offer benefits that private loans lack, such as income-based repayment plans and loan forgiveness. In addition, if President Biden’s proposal to forgive up to $10,000 in student loans is enacted, it will likely be limited to federal loans.

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