Does a Student Loan Rate Increase?

Paying the interest rate on a student loan is one of the many challenging things about financing a college education. Further complicating the issue is the inextricable connection between student loan rates and financial markets – and political maneuvering. An ongoing recovery in the American economy, and entrenched legislative gridlock, suggests that we may not have seen the last of student loan rate increases.

In May 2014 article entitled “College Gets Even More Costly: Federal Student Loan Rates Set To Rise,” Forbes warns students of the 2014-2015 academic year who need to borrow federal student loans that their interest rates will be going up. Interest rates on the government-sponsored Stafford Loans will increase to 4.29 percent (up from 3.86 percent for the 2013-2014 academic year) for loans disbursed between July 1, 2015 and June 30, 2016.

Why Did Stafford Loan Rates Increase?

Forbes explains that one of the reasons behind the increase is an auction completed by the U.S. Treasury that sold 0.8 percent more than its auction last year – 0.8 percent being the difference in the new student loan interest rates. This is because Congress tied student loans to the Treasury Note in 2013, says Bloomberg, meaning that for every $10,000 borrowed on a 10-year repayment program for the 2014-2015 year, undergraduate Stafford borrowers will pay $46 more – about $4 extra dollars a month.

Another reason for the student loan rate increase is because of the aftermath of the financial crisis. As Bloomberg Businessweek puts it, Congress lowered the rate for student loans to 3.4 percent because of the economic decline in the country. The reduction was set to expire in 2013, which would have made rates skyrocket to 6.8 percent. A bipartisan deal arrested the expected increase, but the move has not come without political bickering, with both the executive and legislative branches of the government accusing the other for not doing more to control “higher borrowing costs,” the Washington Post quotes House Speaker John Boehner as saying.

Will Student Loan Rates Continue to Increase?

Speaking to the Huffington Post, the publisher of Edvisors Network, Inc., a network of college financial aid websites, warned that students can expect to see interest rates climb even higher by the time they graduate. “The real concern,” he says, “is that the interest rates have nowhere to go but up.”

That’s a sentiment echoed by the The New York Times that says that due to the rising rates on treasury notes, the rate of some loans will also increase. The Institute for College Access and Success cites the Congressional Budget Office when it estimates that by 2017, loan rates for undergraduate students should hit 6.8 percent. Similarly, graduate loan rates will already exceed their old rates as early as 2015.

If you are one of the 7 million people (according to PBS) affected by this rate increase, or if you have questions about what the increase means for you, your family and your education, we are here to answer your questions, and to give you all the information you need about financing your college or university plans. Please take a look at the other articles on our website to read more about the recent student loan rate increase.

 
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Repayment 

Student Loan Repayment and Financial Problems