WASHINGTON – Interest rates go up Tuesday for students taking out new federal loans. This hike is relatively minimal but could foreshadow more increases to come.
The change stems from a high-profile, bipartisan deal brokered last year by Congress and signed by President Barack Obama that ties the rates to the financial markets.
Interest rates go from 3.86 to 4.66 percent on undergraduate Stafford loans. Graduate student loans go from 5.41 percent to 6.21 percent. Interest rates on Plus loans for parents go from 6.41 percent to 7.21 percent.
For every $10,000 borrowed, the average borrower under the hike will pay back about $4 more every month when they begin paying back the money – about the price of a fancy latte.
If the economy continues to improve, however, these kinds of rate hikes could continue.
Congress stipulated the rates for new loans be reset annually, but that borrowers keep the rate they were given for the life of the loan.
The compromise in Congress was reached after rates doubled last July.
Students take out new loans each year, so by the time they graduate they could be repaying loans that have different interest rates.
Mark Kantrowitz, publisher of edvisors.com, estimates that today’s freshman could potentially see rates the same or higher than they were when Congress acted by the time they graduate. When Congress acted, rates for undergraduate students were at 6.8 percent.
“The real concern is that the interest rates have nowhere to go but up,” Kantrowitz said.
The deal did include caps. Interest rates will not top 8.25 percent for undergraduates. Graduate students will not pay rates higher than 9.5 percent, and parents’ rates top out at 10.5 percent.