College Will Be More Expensive This Fall As Student Loan Interest Rates Climb

Undergraduate borrowing rates will be approximately two times higher in the autumn of this year than they were in 2020-21.

New undergraduate direct federal student loan interest rates will rise to 4.99 percent in the 2022-23 academic year, up from 3.73 percent this year and 2.75 percent in 2020-21, from 3.73 percent last year. Parents’ and graduates’ PLUS loans’ interest rates would also climb to 7.54 percent, from 6.54 percent now.

Loans made before July 1 will have interest rates that are based on the 2021-22 academic year. The new interest rates go into effect on July 1.

It will be more expensive to pay off a debt with a higher interest rate. It will cost $6,997 in interest over the usual 10 year payback period for a $5,500 loan, which is the highest this student may borrow, if they have an interest rate of 4.99%. This loan would cost $6,297 in 2020-21 if it had a 2.75 percent interest rate.

Those who take out graduate direct and PLUS loans will see their borrowing costs rise even more. The origination cost for PLUS loans is 4.23 percent, in addition to the increased interest rates.

Using data from the Hechinger Report, an educational organization, the average PLUS loan amount in 2019 was around $14,000. With a conventional 10-year term and an interest rate of 7.54 percent in 2019, the loan would cost $19,977 in total, with $5,977 of that amount being interest.

Each year, the Treasury Department holds a 10-year note auction to determine the interest rates on federal student loans. Additionally, there are margins mandated by Congress, and these margins vary depending on the kind of federal student loan.

2.05 percentage points are added to the interest rate for undergraduate direct loans, 3.6 points for graduate student loans, and 4.6 points for PLUS loans, respectively.

The rate of interest on student loans has soared to its highest level in some years.  According to Dion Rabouin of the Wall Street Journal, this year’s rates are so high because they hit a historic low in 2020. 

Student loan interest rates have increased, making the payback of education even more vital to consider. Taking on any debt is always a personal decision. Although interest rates on federal student loans have risen, they are still the best choice if you need loans to pay for college. 


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