Federal student loan interest rates will rise as of July 1. However, because college students who had to take on debt this year have enjoyed some of the lowest borrowing costs in history, rates will still be relatively low. (For more, see 5 Ways the Interest Hike Could Affect You.)
Why Student Loan Interest Rates Will Rise
Rates for federal loans are determined by an annual auction of Treasury notes. Because the yield on those bonds rose lin May, so too will student loan rates for 2017-18.. Between July 1, 2017, and June 30, 2018, recipients of Stafford loans can expect to pay 4.45%, an increase of nearly three-quarters of a percentage point over the current rate of 3.76%. Those who receive graduate Stafford loans will have to pay 6% on their loan balance, up from 5.31%.
Rates are also expected to rise for borrowers who participate in the federal PLUS program, which is available to grad students and parents of undergraduates. Their interest rate will jump from 6.31% to 7%.
Because federal student loans offer fixed rates, the loans of those who have borrowed in previous years won’t be affected by the change. Nor will the changes impact loans from private lenders, which are not subject to the formula the government uses. Private loans generally move in lock step with the London Interbank Offered Rate (LIBOR), a benchmark rate for short-term debt. (For…