Here’s a big bummer for anyone that needs additional Federal student loans – interest rates for Federal loans are scheduled to start increasing on July 1st, 2017.
Undergrad Interest Rates
Federal student loan interest rates for Undergraduate Students are scheduled based on Treasury Department auctions for 10-year notes, and the current rate (for 2016/2017) is 3.76%, which remains near historic lows.
However, based on the results of the May 10 Treasury Department auction, rates for the 2017/2018 school year are set to increase to 4.45%.
And while that may not seem like a big jump, over the lifespan of a 20 year loan, a .69% interest rate hike can end up costing you thousands of dollars (especially if you borrow a large amount of money).
Graduate Interest Rates
Graduate student interest rates will be increasing beginning July 1st as well, with the rate hike on direct unsubsidized loans jumping from 5.31% in 2016/2017 to 6% in 2017/2018.
The worst thing about these unsubsidized loans is that they start accruing interest as soon as they’re taken out (meaning even while you’re still studying, your debt is expanding!).
And that’s bad news for Graduate students, since any interest rate hike is likely to have an even bigger impact that they would on undergrads, who typically don’t start accumulating interest until they’ve graduated.
Rate Hikes Only Impact New Loans
Before you get too excited, remember that these interest rate hikes don’t apply to existing student loans, but are only applied to new loans taken out on or after July 1st, 2017.
Also, these rates hikes do not directly impact Private Student Loan Interest Rates, as the private lenders can charge whatever they want, whenever they want, and are essentially uncoupled from the Federal interest rates.
However, you can bet that Private lenders will be increasing their own rates in accordance with the Federal increase (as that’s just good business…), so if you need to borrow more money for your higher education, consider taking those loans out before July 1st in order to take advantage of the prevailing lower rates.