Published reports from Washington indicated that interest rates on Federal Direct Loans will be 0.69% higher for academic year 2017-18 than in 2016-17, making it more costly for students and their parents to borrow such loans.
Americans borrow more than $96 billion a year from the Federal Direct Loan Program. That’s almost 90% of all the loan dollars used to pay for college in the United States.
Here’s how the 2017-18 interest rates compare to interest rates for 2016-17:
Federal Direct SUBSIDIZED Loan 4.45% 3.76%
Federal Direct UNSUBSIDIZED Loan 4.45% 4.45%
Federal Direct GRADUATE PLUS Loan 6.00% 5.31%
Federal Direct PARENT PLUS Loan 7.00% 6.31%
It’s estimated that the new interest rates will result in a 2017-18 college freshman paying at least $80 more in interest than his 2016-17 counterpart (if both were to borrow the freshman Federal Direct Loan maximum of $3,500). So the new interest rates make it more important than ever to borrow conservatively — taking on as little debt as possible and minimizing the use of higher interest rate and unsubsidized loans.
Technical Stuff Worth Knowing
The new interest rates apply to loans whose first (or only) installments are disbursed to borrowers on/after July 1, 2017 but before July 1, 2018.
Federal Direct Loan interest rates are fixed, which means the rate for each loan first disbursed in a July 1-June 30 year remains the same from the date it’s first disbursed until the date it’s paid in full.
Federal Direct Loan interest rates aren’t set on a whim. Current law requires them to be raised or lowered based on the rate at which 10-year Treasury bills are sold at the last auction of such securities before June 1. Such Treasury bills sold for a higher rate this May than last May.
With 40 years experience in student loans, College Affordability Solutions can offer students and parents strategies for minimizing student loan indebtedness. Email firstname.lastname@example.org or call (512) 366-5354 for such assistance.