Interest rates on federal student loans may increase by 1%: ‘A fairly big jump,’ expert says

Personal finance

Morsa Images | Digitalvision | Getty Images

It may soon be more expensive to borrow federal student loans.

The government sets interest rates on its education loans once a year. The rate, which runs from July 1 to June 30 the following year, is based in part on the May auction of the 10-year Treasury note.

This year, that Treasury yield has been on the rise while the Federal Reserve keeps interest rates high until inflation comes down. The May 8 auction put the high yield rate at 4.483%.

As a result, federal student loan rates may increase by about 1% in the 2024-2025 academic year, according to an estimate by higher education expert Mark Kantrowitz.

“This is a fairly big jump,” Kantrowitz said.

Here’s what borrowers need to know.

What will the new rates be?

The U.S. Department of Education is expected to publish the official new rates in the coming weeks.

The interest rate on new undergraduate loans will likely rise to 6.5% for the 2024-2025 academic year, up from 5.5% last year, Kantrowitz calculates.

More from Personal Finance:
How to reduce taxes on your inherited individual retirement account, experts say
Americans can’t stop ‘spaving’ — here’s how to avoid this financial trap
Women farmers are key decision-makers, according to USDA data

For graduate students, loans will probably come with a 8% interest rate, compared with 7% now, he said.

Plus loans for graduate students and parents may have a 9% interest rate, an increase from 8%.

Who is affected? 

All federal education loans issued on or after July 1, 2024, will be subject to the new rates.

Sorry, families: You can’t try to evade the rate increase by borrowing ahead of that deadline. Loans for the 2024-25 academic year must be taken out after July 1.

Don’t worry about loans you’ve taken out for previous academic years: Most federal student loan rates are fixed, meaning the rates on those existing loans won’t change.

The rate changes apply only to federal student loans. Private loans come with their own — often higher — interest rates.

Articles You May Like

Beer Taxes by State, 2024
Family films led by ‘Inside Out 2’ could reignite the box office
IRS: Taxpayers may avoid a penalty by making a second-quarter estimated payment by June 17
Boeing CEO heads to Senate hearing over safety and manufacturing crises
Here’s why car payments are so high right now