After the Treasury Department’s auction of 10-year notes in May, new interest rates on federal loans went into effect on July 1. A 10-year note is a loan given by someone to the government. Naturally, this person will make interest off their investment, and as the rate of return increases, known as the yield, this, in turn, affects the interest rates on 10-15 year loans. The interest rate hike will apply to loans taken out for the 2017-2018 academic year. Here is the breakdown of the three key interest rate increases.
Undergraduate Federal Student Loans
The interest rate for undergraduate students taking out new Stafford loans was set at 3.76% but will now rise to 4.45%. According to the article “Say goodbye to low interest rates on federal student loans, at least for now” published by The Washington Post, “a freshman taking on a $5,000 loan for the 2017-18 academic year will pay $196 more in interest with the new rate.” The article cited how a student taking out a $5,000-student loan will pay back $6,007 at the previous rate. Now, they will pay back $6,203 if they pay off the loan in ten years.
Graduate Federal Student Loans
For graduate students, the rate was previously at 5.31% but will now rise to a solid 6%. As outlined by the above-mentioned article, a “graduate student who took out a direct loan for $20,000 this past school year would have to shell out a total of $25,821 to pay back the debt in 10 years.” With the new hike, they will have to pay an additional $833 back in interest.
If a parent took on federal debt to pay for their children’s bachelor’s degree, they will now pay 7% percent on the loan instead of the 6.31% that it was previously at. This means that they will be paying $423 more when they pay the loan back in 10 years. But there are other private options out there that might be more competitive than these federal loans.
Private Programs Offering Competitive Rates
According to the article “Rates going up on federal student loans beginning July 1” published by Detroit Free Press, “Kevin Walker, head of education loans for Lending Tree, said there are more new lenders in student lending this year than in nearly a decade.” These lenders are rolling out different programs that may be more appealing than federal loans. Walker said, “private student loans have an annual percentage rate that runs roughly in a range of 3% to 9%, depending on creditworthiness.”
One such example noted by the article is Sallie Mae’s new product that offers competitive rates for graduate students. Their product offers “fixed rates ranging from 5.74% to 8.56%. The rates for a variable loan product for MBA students range from 3.12% to 8.09%.” Private loans could be a possible solution for those who feel these rate increases are too high. If you have good credit, chances are, you can get a better deal somewhere else.