Student Loan Interest Rates Will Go Up More Than 1% in June — Will There Be Any Relief for Borrowers?
With the President Biden-mandated federal student loan moratorium in place until the end of August — and no movement on the broader loan forgiveness front — it has been announced that interest rates for new student loans will increase in July.
On May 11, the Treasury Department announced new interest rates for federal student loans — a rate increase that will go into effect starting July 1, 2022, as part of the Treasury’s efforts to fight inflation. This announcement comes after the Federal Reserve hiked interest rates last week to a range of 0.75% to 1%, the largest increase in over 20 years.
For existing borrowers, the interest rate increase does not apply. For any new loans disbursed on or after July 1, 2022, the higher rates will go into effect.
The new rates affect these three types of federal student loans:
- Federal Stafford loans for undergraduates: 4.99%, up from 3.73%.
- Federal Stafford unsubsidized loans for graduates and professionals: 6.54%, up from 5.28%.
- Federal PLUS loans for parents and graduate or professional students: 7.54%, up from 6.28%.
These hikes by the Treasury are unrelated to any policies surrounding student loan relief. Every May, new fixed interest rates are set for the upcoming academic year.
Even small interest rate bumps can make a difference in repayment costs. During a 10-year repayment period, a new borrower should expect to pay an additional $252 in annually accruing interest — and additional $1,400 in additional interest — on an original $20,000 loan, given the new rate changes, per Forbes.
At the beginning of April, President Biden officially extended the student loan payment moratorium until Aug. 31, claiming the extension “will help Americans breathe a little easier as we recover and rebuild a little from the pandemic.”
Interest rates on all government-held federal student loans will revert to their original fixed rates in September unless the Biden administration further extends loan relief — or eliminates part (or all) of existing student loan debt altogether. The president has stated that a decision regarding this matter will come in the next few weeks.
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