College Students, Parents Facing Higher Loan Costs

Career College Central summary:

College students who take out federal loans are likely to see interest rates jump, potentially by a percentage point or more, in the coming academic year. Last year, the government began to peg rates on most student loans to the Treasury 10-year note. Stafford loans, the most widely borrowed, carried an undergraduate rate of 3.86 percent for the 2013-14 school year. In the past three months, the 10-year yield has traded 0.8 to 1 percentage point higher than a year ago, which means borrowing costs might rise.
Interest rates for the school year beginning on July 1 will be determined after the Treasury’s 10-year note auction on Wednesday. While interest rates are fixed for the life of an education loan, borrowers take out a separate loan for each school year. Federal loans make up most of the $1.2 trillion in outstanding education debt.
“The interest rates that people are going to be paying on these student loans are going to go up, making the cost of college that much more burdensome,” said David Ader, head of interest-rate strategy at CRT Capital. “As the years come on, they’re more likely to come up than come down.”
In the current year, graduate Stafford loans had a 5.41 percent interest rate, while PLUS loans for graduate students or for parents paying their undergraduate children’s college costs were set at 6.41 percent. The Congressional Budget Office projected rates for the 2014-15 school year of 5.09 percent for undergraduate Stafford loans, 6.64 percent for graduate Staffords and 7.64 percent for PLUS loans, the Consumer Financial Protection Bureau said.

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