In this file photo, students move in to West Quad dormitory on the University of Michigan campus in Ann Arbor on Tuesday, Aug. 25, 2020. Those borrowing money for college this year are going to pay higher interest rates.Jacob Hamilton/MLive.com
Borrowing money for college is going to be more expensive this year.
Interest rates for federal student loans have jumped more than a percentage point, the biggest hike in nearly a decade.
“You have interest rates going up. You have the cost of college going up. It’s definitely a challenge for any family out there,” said Vicki Beam, owner of Michigan College Planning in Traverse City.
The U.S. Department of Treasury announced earlier this year undergraduate loans will have a 4.99% interest rate — up from 3.73% last year and nearly double the 2.75% two years ago. That means a college freshman borrowing the maximum $5,500 will pay $399 more in interest over 10 years.
Graduate loans also saw big increases with unsubsidized loans now at 6.54% and PLUS loans, made by U.S. Department of Education to eligible parents and graduate or professional students, at 7.54%.
“One thing that a lot of families may or may not realize is… that is the interest rate that will stay with that loan for the duration. So, if you have students going four years, they will have potentially four different interest rates,” said Beam, who has been helping families across the country figure out college financing for about 15 years.
Related: Will student loans be forgiven? A $10K plan could erase debt for thousands of Michiganders.
Loans borrowed from July 1, 2022 through June 30, 2023 will be impacted by the new rate.
Private student loan interest rates are tied to credit scores and can range from around 1% to 14.75%.
The U.S. Department of Treasury changes the federal student loan interest rates every May based on 10-year auction notes. U.S. Congress linked that rate to student loan interest back in 2013.
The recent hikes come after two years of low interest rates and are now at pre-pandemic levels. They’ll likely continue to rise as the Federal Reserve tries to tamp down inflation by raising interest rates.
“People haven’t been thinking about it for a bit because we haven’t had any interest accruing on federal loans since March of 2020 and that’s set to expire at the end of the month,” Beam said.
A pause on student loan repayments and interest is set to end on Sept. 1.
President Joe Biden is facing pressure to take broader action to tackle the $1.7 trillion student debt load before the moratorium ends. The White House is considering a plan to forgive $10,000 per borrower as other Democratic lawmakers push for broader forgiveness programs.
More on MLive:
These Michigan colleges have the best value nationally, Money Magazine says
Student loan payments have been frozen for two years. Here’s how the pause helped 6 Michiganders.
‘Cancel student debt once and for all,’ Michigan Attorney General urges Biden
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Taking out student loans this year? It’s going to cost more. – MLive.com
