Student Loan Interest Rates About to Rise: How Much and When
Hold on to your hats, folks, student loans are about to get a ground more expensive. The Federal Reserve announced interest rate increases effective July 1, 2022 on consumer loans to fight inflation, including subsidized and unsubsidized federal student loans.
How much will interest rates increase?
And that’s not just a small rate hike, it’s a doozy – 1.26 percentage points, which might not sound like a lot, but translates to about a 34% increase in undergraduate loans. , a 24% increase in college level loans and a 20% increase in PLUS loans.
Interest rates for undergraduate loans will jump from 3.73% to 4.99%, for graduate loans the jump will be from 5.28% to 6.54%, and PLUS loans will increase from 6.28% to 7.54%.
Will you be affected if all your student loans are already taken out?
With federal student loan repayments set to resume at the end of the summer, this increase may seem like the end of your bank account, but don’t worry, the rate hike, which will begin on July 1, does not affect any loans. federal which you have already released. Federal student loans have a fixed interest rate that won’t increase despite the Fed’s rate hike, so if you have existing loans, they won’t be affected by this huge rate increase.
The rate hike will be in effect for parents and students planning to take out federal student loans for the upcoming fall semester. If you’re considering taking out privately funded student loans, you might be sheltered from rising rates. The government sets the rates of federal student loans, while private loans are managed by the entity making the loan, so they are the ones who set these rates. Contact your lender to determine if new student loans will be affected by the rate increase.
Unfortunately for new borrowers, however, since federally funded student loans have fixed interest rates, all loans taken out between July 1, 2022 and June 30, 2023 will retain the same rate for the duration of the term. loan, even if interest rates fall again before you have repaid your loan. If you want to lower your rate, you can always consider refinancing your federal student loan with a private lender and negotiate a lower rate. According to Forbesto refinance a student loan, “you will need a credit score of at least 650, be employed or have a job offer, have a stable monthly income, and have the monthly cash flow to pay your student loans and other living expenses.
Could interest rates get much higher?
It should be noted, however, that Congress has set a cap on interest rates for federal student loans, according to The Washington Post – Undergraduate loan rates can never exceed 8.25%, graduate loans cannot exceed 9.5%, and PLUS loan interest rates are capped at 10.5%.
However, those numbers may seem like cold comfort to the legions of families preparing to take out student loans at the new, higher rates. Considering the crushing weight of student loan debt already supported by 45 million Americans and the national conversation about federal student loan debt forgivenessadding extra interest and increasing that burden for kids just starting college, can be shortsighted.