Interest rates on new federal student loans will rise in the years 2022-2023
Two years ago, borrowers of federal student loans had the lowest interest rates in history. This fall undergraduate borrowing rates will be about double those of 2020-21.
Interest rates on new undergraduate direct federal student loans will jump to 4.99 percent in the 2022-23 academic year, up from 3.73 percent last year and 2.75 percent in 2020-21. The interest rate on graduate direct loans will also increase to 6.54 percent, while parent and graduate PLUS loans will increase to 7.54 percent.
With increased interest rates, repaying debts will be more expensive. With a 4.99 percent interest rate, a $5,500 loan – the highest amount a dependent first-year undergraduate student might borrow – will cost $6,997 over the course of a 10-year repayment period. In 2020-21, this loan would cost $6,297 at a 2.75 percent APR.
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Graduate direct and PLUS loan borrowers will see their borrowing fees rise even further. In addition to higher interest rates, PLUS loans have a 4.23 percent origination charge and no borrowing restrictions.
According to the Hechinger Report, a nonprofit focused on education issues, the average PLUS loan in 2019 was around $14,000. The loan amount will cost $19,977 over the life of the loan, including $5,977 in interest, assuming a traditional 10-year term and a 7.54 percent interest rate next year.
Interest rates on federal student loans are set by the Treasury Department’s 10-year note auction in May. The 2.94 percent interest rate on the May 10-year notes is added to congressional margins, which vary depending on the type of federal student loan.
The interest rate on undergraduate direct loans has been raised by 2.05 percentage points, 3.6 percentage points for graduate student loans, and 4.6 percentage points for PLUS loans. Fill out the FAFSA and consider the benefits.
Increases in federal student loan interest rates make it even more important to consider repaying your educational debt and determining if any debt you incur is worthwhile.
Federal student loans, even with increasing interest rates, are still the best method to support your education if you need money. Fill out the Free Application for Federal Student Aid, or FAFSA, to see if you qualify for federal, state, or school-based support.
You can apply for grants and other non-repayable financial aid through the FAFSA, such as the Pell Grant. Before considering private student loans, be sure you’ve exhausted all federal student loans available to you, as well as any non-repayable help. Borrowers who take out federal student loans are given additional protections.
College costs vary depending on your major, tuition, and the amount of debt you must take on to pay for it. If the payoff isn’t clear for you, consider alternatives to college or starting at a community college before transferring to a four-year school to attain your bachelor’s degree.