Beginning this fall, college students should expect to pay more on their student loans – interest rates are expected to rise.
Students will see interest rates on their federal student loans rise by over half a percent thanks to the May 9 Treasury Department 10-year note auction, according to The Washington Post. Why exactly? Since the establishment of the Bipartisan Student Loan Certainty Act of 2013, federal student loan rates are tied to the market funding rate, which is determined by the 10-year auction by the Treasury.
The Rising Cost to Borrow
For loans taken out for the 2018-2019 school year, undergraduate students can anticipate paying 5.04 percent interest on new Stafford loans versus today’s 4.45 percent.
Graduate students will see loan interest rates increase to 6.59 percent, up from 6 percent on Stafford Loans. Parents who take out federal student loansto pay for their children’s education will pay 7.59 percent, up from the current 7 percent.
Note that Congress has a ceiling for these interest rates, despite them being tied to the market. The caps are 8.25 percent for undergraduate loans; 9.5 percent for graduate loans, and parent 10.5 percent for parent loans.
Despite the cap, rising interest rates will always lead to a more expensive education if you’re relying on student loans. Given the buzz on rising rates, it pays to know some tips that could help you potentially lower your interest rate.
Should You Consider Refinancing?
Student loan refinancing with a private lender can be used to combine both federal and private student loans into a single loan. This new loan pays off the old loans, and you’re left with a whole new loan agreement. The main incentive is to get a lower interest rate and consequently, a lower monthly payment.
It sounds like a great deal, but it’s not so simple. Student loan refinancing is tough to qualify for, and it’s even harder to qualify for a rate that justifies the move. For approval, a high credit score and solid monthly income is required.
It’s important to remember that private lenders do not offer the same benefits as the federal government. If you choose to refinance, then you risk losing eligibility for student loan forgiveness, multiple unique repayment plans, and rehabilitation options.
Here’s another important reminder. The interest rates on refinance loans are also subject to market fluctuations. If you are looking to refinance later this year, then you will probably be looking at a higher rate, so refinancing may not be the right choice down the road. Furthermore, if you opt for a variable-rate refinance loan, then your interest rate may rise during repayment. This is an important loan detail to keep in mind at all times.
Author: Mike Brown
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