This month, interest rates on federal student loans increased again.
Stafford Loans are now 4.66%, up nearly a full percentage point from last year’s rate of 3.86%.
Graduate student loan rates are now 6.21%, up from 5.41%
Parent loans – the impossibly named “PLUS” Loan – increased from 6.41% to 7.21% this year. Adding insult to injury, the Department of Education charges more than four percentage points as a fee to originate the loan. In other words, if you borrow $100,000, you pay more than $4,000 in fees. (Can you say “Predatory?”)
Last year, Congress passed a law tying education loan interest rates to U.S. Treasury notes, so I think it’s a no-brainer that rates are will increase each year. The good news – if you can call it that – is that there is a cap of 8.25%.
On the bright side, there are now new income-based options for new borrowers, but not pre-existing borrowers: The executive order President Barack Obama signed a few weeks ago “Pay As You Earn” excludes borrowers with older loans. New borrowers will be able to take advantage of these payment terms now.
Specifically, borrowers who take out their first loan on or after July 1 will be eligible for the version of the income-based repayment plan that caps payments at 10% (the previous income-based plan set a limit of 15%), of their disposable income and will forgive any remaining balance after 20 years rather than 25.
Your best bet to avoid going down this rabbit hole (trust me from my personal experience, student debt is AWFUL) is to educate yourself.
If you live in Eastern Long Island, please check out our upcoming workshop at College 101 in East Setauket next week. Bring a friend while we still have space!
Everyone else, I’m running online workshops once or twice a week, take a look at my College Planning Crash Course webinar.
Both workshops are entirely free – but full of extremely valuable information that could save you thousands, if not tens of thousands, of dollars by showing you key “loopholes” that could multiply your eligibility for grants and scholarships.
– Andy Lockwood
P.S. Class of 2015 students and parents: Because of time constraints (I personally handle all coaching), we’re close to maxing out our application, essay, college selection coaching for the summer. If you are interested in this type of help, schedule a Mini Strategy Session before we close out.