Preparing for Increased Federal Student Loan Interest Rates

On July 1, 2018, the federal student loan interest rates increased. Here's a breakdown of what that means and how students can prepare to take on these rates.

How are rates determined?

Federal loan interest rates are set by Congress. Each year, the new rates are applied to loans taken out after July 1. These rates stay the same for the life of the loan. They do not apply to loans taken out before this date.

What were the changes?

In 2018, the rates for undergraduate students rose from 4.45% to 5.05%. For graduate students, the rates increased from 6% to 6.6%. PLUS loans – which are loans parents take out for their children – saw a rate increase from 7% to 7.6%.

What is the impact?

The impact will be felt over the long term. Higher interest rates mean the total cost of your loan will be higher. In turn, your monthly payments could also go up.

How can students prepare?

It's vital that students recognize these increases and plan for the long-term impact of their loans.

• Avoid borrowing too much: Borrow only what you need for your education costs and not more.
• Choose the right repayment plan: Different repayment plans can help manage your monthly payments. See which option works best for you and your financial situation.
• Consider jobs that offer loan forgiveness: Some employers, especially in public service, can help with loan repayment.
• Pay on time: If possible, make more than the minimum payment. This will decrease the overall amount you will pay over the life of the loan. Also, late payments can increase your interest.

Remember, every student's situation is unique. If you have specific concerns about your student loans, consider speaking with a financial advisor or your school's financial aid office. They can help you understand your options and create a plan that fits your needs.

What about private loans?

Remember, private loans can sometimes offer lower interest rates than federal loans. However, they may not offer the same benefits, like income-driven repayment plans or loan forgiveness opportunities.

Whether you choose federal or private student loans, understanding how interest rates affect your total cost is important. Always factor in the long-term impact when making financial decisions about your education.