On May 8, it was announced that student loan interest rates for the 2014-15 school year would increase for students borrowing from the federal government. Currently, the rates are fixed at 3.86% for undergraduate subsidized and unsubsidized Stafford loans, but next academic year, they will increase to 4.66%.
Graduate and professional students can expect to see a 6.21% interest rate on unsubsidized Stafford loans, and PLUS loan borrowers will see an increase from 6.41% to 7.21%.
The rate increase may seem like quite a hike, but pre-recession interest rates on Stafford loans were 6.8%. And to look even further back, rates had spiked to over 7% in the mid 1990s.
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At this point, you may be thinking, “Ok, what do these increases actually mean for me?” According to Bloomberg
, undergraduate students who borrow Stafford loans from the government will pay roughly $46 more per year for every $10,000 borrowed.
However, there is a real possibility that these rates could mean changes for current students and graduates. Recently, Senator Elizabeth Warren, a Democrat from Massachusetts, filed a bill with other Democratic sponsors that would allow millions of people to refinance their student loans at the current rates. Those who borrowed money from the federal government to pay for school before 2013 would be able to refinance their loans at these historically low levels, as reported by CBS News
There is a lot of controversy around this proposed plan as it requires a tax increase to the wealthy and also cuts revenue to the government, according to CBS News
. However, Warren and many others believe it’s worth it to help with the $1.2 trillion dollars owed by student loan borrowers.
reports that Warren’s office stated that about 40 million Americans owe at least $30,000 apiece in student loans. With that, 30% of student loans are in default, forbearance or deferment. Clearly, graduates are struggling with their student debt, and one of the major consequences is the impact this has on the economy.
Obviously, the student loan rate increase has many future borrowers concerned, especially given that the economy isn’t exactly at pre-recession standards and many current graduates are still struggling to find decent job opportunities. However, students should be rest assured that these rates are still some of the lowest this country has seen historically.
Plus, there a variety of options for students who are looking for lower monthly payments after graduation, like loan consolidation
, loan forgiveness
and income-based, graduated and extended repayment plans
Furthermore, students who plan to borrow can do something to take action now; they can start saving. Even if there are just weeks, months or a year before college begins, it’s never too late to start saving. After all, a $1,000 saved is a $1,000 less to borrow. Start on your savings plan now with our College Savings Calculator