Interest rates on federal student loans are set to rise July 1. The rate increase affects only loans disbursed on or after July 1 of this year. Loans taken before then will not be affected.
For new loans, the rate on undergraduate Stafford loans will climb to a fixed 4.66 percent from 3.86 percent.
On Stafford loans for graduate students, the rate will jump to a fixed 6.21 percent from 5.41 percent.
PLUS loans, which either parents or graduate students can borrow, will rise to a fixed 7.21 percent from 6.41 percent.
Rates are rising because in 2013, Congress passed legislation that tied federal student loan rates to the 10-year Treasury note, resetting every July 1. Without the new law, rates last year would have doubled from 3.4 percent to 6.8 percent.
But now Treasury rates are rising, pushing up the cost of borrowing for students.
Even so, with federal student loans, “You have a range of repayment options and consumer protections that other financing doesn’t provide,” said Lauren Asher, president of TICAS.
Those options include income-based repayment plans, which cap your monthly bill to an affordable percentage of your income, and the ability to defer payments if, say, you lose your job.
And this year’s rate jump for federal loans may be manageable.
A freshman who borrows the maximum $5,500 allowed during the 2014-15 school year will see the monthly payment after graduation rise by little more than $2.