Just in time for the upcoming academic year, federal student loan rates are set to rise on Saturday July 1 which will surely affect many students and parents.
Although many did not expect this increase, CNBS reports the rates were set in May during the Treasury Department’s last auction of 10-year notes.
For Stafford loans, undergraduate loans will see a spike from 3.76 percent to 4.45 percent, which the graduates school Stafford loans will go from 5.31 percent to 6 percent. The rates for parent PLUS loans will also see an increase from 6.31 percent to 7 percent.
Federal student loans have fixed interest rates meaning the interest rate is set at the same rate for the life of the loan. This means previous borrowers will not be affected by the increase however, new borrowers will have the increased rates for the life of their loans.
This means that undergraduates borrowing $5,500 for a year will now pay $220 more in interest than the previous rates assuming a 10-year repayment timeline. The higher loan amounts will see a higher difference in their interest than the $220.
Although, new borrowers aren’t happy about the increase, these rates have actually decreased from a decade ago when the rates were above 6 percent.
"The financial impact of this increase is on the order of a few dollars a month on a 10-year repayment plan for every $10,000 borrowed," Mark Kantrowitz, vice president of strategy for college and scholarship search site Cappex.com, told CNBC.
No one wants to take out a loan after the increase, however most borrowers won’t notice a big difference over the entire life of their loan.