Interest rates on federal student loans are increasing from 3.76% to 4.45%. Undergraduate and graduate students looking to borrow money for their upcoming schooling are looking against several hundreds of dollars at least! Let us take a look at this latest development and how it could affect students.
Student Loan Increases for Undergraduates, Graduates and PLUS Loans
The rates for federal loans for school year 2016-2017 were determined at 3.76%. However, undergraduate students who want to obtain a loan for the new school year 2017-2018 are looking at an interest rate of 4.45% minimum.
Graduate students are also affected, so not only undergraduates will feel the increase in student loan rates. Graduates are now looking at a 6% interest rate for their federal loan, which is up from 5.31% compared to the previous year.
PLUS loans are also affected, increasing to 7% from 6.31%. However, even though the student rates are up, the overall rates are lower since the government stopped the provision of variable rate student loans.
The Trump Effect
Financial experts state that the student loan rates increase can be attributed to the so-called Trump effect. Since Trump is cutting taxes, he is actually increasing the budget deficit; this has an overall negative impact on future interest rates.
Date of the New Student Loan Rates
The expected increased student loan rates are to take effect on July 1st, 2017. These increased rates will only apply to students who take out another loan in the coming school year.
We do need to mention that despite the increase of student loan rates at the moment, the interest rate of that student loan will stay fixed for the life of the loan; this means that a future increase in student loan interest will not affect students starting in school year 2017-2018 further, unless something changes in U.S. legislation.
It is common for students to have more than one student loan they need to pay off upon their graduation. On average, students have at least four separate loans, each with their own individual interest rate. Therefore, students must carefully consider the options they are going for.
Positives Despite the Increase
Even though an increase might sound quite negative and could have an impact on students getting a loan in the upcoming school year, the overall rate is still lower than those from 2013. In 2013, the interest rate was as high as 4.66%! Ten years ago it was even worse, more specifically an interest rate of 6%. So, things are not as bad as they may seem at the moment.
What the Future Brings
The increase in student loan rates is expected to increase over the next couple of years though; this mainly due to Trump increasing government spending and cutting taxes. Even though cutting taxes might seem like a good thing for many households at the moment, it could have an impact on the financial future of many students.
Since the Trump administration has only started recently, it is too soon to tell how major the impact of the Trump administration will be on the education of American students. Still, all we can do is wait and see!
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