Student Loan Interest On Course To Spike

( – Prospective college students in the U.S. have been told to expect significant interest rate hikes on federal student loans issued in the upcoming school year.

The government held its most recent auction of the 10-year Treasury Note on Wednesday, May 8, prompting financial experts to predict rate increases of around 1% for the coming year. The Treasury Note is a form of government managed bond closely tied to the interest rates which are reviewed yearly. These rate changes will not directly impact private loans.

The increase is set to be the biggest jump in student loan rates in more than a decade, with both new undergraduates and graduate students impacted. Existing students who already have agreed upon loans, will not be affected. New undergraduates will see interest rates rise from 5.5% to 6.5%, graduate rates will go from approximately 7% to 8%, and those who take out PLUS loans will be hit with a 9% rate, up from approximately 8%.

The rise has the potential to add thousands of dollars of debt to a new student’s loan repayments over their lifetime, a far cry from the president’s attempts to wipe $10,000 of debt for borrowers earning under $125,000 per year. After the Supreme Court rejected his plan, warning him that he had overstepped his authority, he and his administration have come up with a similar, although much smaller-scale plan. While his first plan would have reduced the debt of 40 million people and would have cost $400 billion to implement, its latest iteration is set to cut the debt of 30 million borrowers. The Biden administration has not yet confirmed how much it will cost. There is no guarantee that this plan will be successfully enacted as it is yet to be finalized and is likely to face challenges in court.

Whatever plans the president may have had for cutting student debt will not stop the increasing rates for new borrowers. This is due to rates being purposefully increased by the Federal Reserve in order to tackle the country’s high inflation, according to financial expert Michael Ryan. Ryan also warned that rates will likely be increased on mortgages and other loans besides student loans. He added that those already tied into a student loan had “dodged a bullet” compared to prospective students who would feel the strain of inflation the worst.

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