Studying comes with a high cost for many students. Today, college students can expect to pay some more in the future. Next school year will become more burdensome for the college students as rates on federal loans are already expected to rise. The increase will start on July 1 for school year 2017 to 2018.
Why the sudden increase? According to sources, the new rates were implemented in accordance to the auction of 10-year notes by the Treasury Department in May 10. Undergraduates will be paying 4.45 percent for the new loans disbursed from July 1, 2017 to June 30, 2017. This is considered a significant increase compared to this year’s rate of 3.76 percent.
On top of this, graduates are said to pay higher financing costs which will begin right after July 1. The students will be paying 6 percent for a direct unsubsidized loan, which will begin accruing the moment the borrower takes out the loan. This is considered an increase compared to the 5.31 percent rate for this year.
Meanwhile, rates on direct PLUS loans which can be used by both graduate students and parents will increase to 7 percent. Last year, this was at 6.31 percent.
The increase will not affect private student loans.
Data says that in the US, the total student debt is now over $1.4 trillion.
According to NerdWallet’s student loan calculator, a student who borrowed a total of $25,000 will be paying $5,032 in interest over 10 years with this year’s rate of 3.76 percent.
The rate increase will increase the interest payment to almost $1,000 more if the student plans to borrow the same amount for the next academic year with the new 4.45 percent rate.
The vice president of strategy for college and scholarship search site Cappex.com Mark Kantrowitz says that the increase will be a few dollars a month if the student will choose to stick with the 10-year repayment plan for every $10,000 borrowed. He adds that existing loans will not be affected – only those that are disbursed starting July 1.