Many families rely on federal student loans to cover at least part of their college expenses, but the cost to borrow government money will soon be higher.
If you have existing loans that have already been disbursed, your rates won’t be affected. But if you’re borrowing on a new loan on or after July 1, 2018, you’ll be paying more in interest.
- The interest rate on federal direct loans will rise to 5.05% for the 2018-19 academic year, up from 4.45% last year.
- The PLUS loan interest rate for parents and graduate students will increase from 7.0 to 7.6%.
- Direct loan rates for graduate students will also increase from 6% to 6.6% moving forward.
This is a sizable single-year increase, but the federal government sets annual interest rates based on the 10-year U.S. Treasury note, which has been on the rise.
What This Means for Students and Families
The bottom line for parents and students is that student loans are becoming more expensive, and they may surpass home mortgage and private loan rates for some families.
For example, current prime lending rates for mortgages are running at 4.5% to 5.0%. Private student loan rates from banks and other non-government institutions are running from 5.5% to 13% depending on the lender and whether your interest rate is fixed or variable.
This is why it’s important to understand all types of student loans and their financial impact on your college planning. It’s also critical to explore all the other sources of funding and financial aid that may be available to you.
You can start by using the Financial Aid and Expected Family Contribution Calculator on my website. This will give you a sense of how much your family will be expected to pay for college expenses for the 2018-19 academic year.
You can also learn more about direct and PLUS loans as well as other federal funding sources in my blog article on the 6 Types of Federal Financial Aid. Make sure to check out and review my helpful article on the 5 Key Components of a College Financial Plan too.
As always, if you have additional questions or would like to engage my services to help you develop your college funding plan, contact me now.
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