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Student Loan Interest Rates to Rise About 1 Percentage Point

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What You Need to Know

  • The new rate for undergraduate student loans will be 3.734% in the 2021-2022 academic year, up from 2.75%.
  • Looking at the last 10 years, rates are still relatively low, Mark Kantrowitz says.
  • Student loan interest rates are based on the 10-year Treasury auction in May; rates on graduate student loans and PLUS loans are higher.

Interest rates on federal student loans for the 2021-2022 academic year will be nearly a full percentage point higher than they are for the current academic year.

Based on the results of the latest 10-year Treasury auction, which is the basis for the calculation of federal student loan rates, the new rate for undergraduate federal student loans will be 3.734% — up from 2.75%, a record low, but still the fourth lowest rate in the last 10 years, according to Mark Kantrowitz, an expert on student loans and financial aid.

For graduate students, the new loan rate will be 5.284%, up from 4.3%, and for Grad PLUS loans and Parent PLUS loans the rate will be 6.284%, up from 5.3%.

The new rates are based on a formula from the federal government that sets loan rates at a premium spread to the high yield in the May 10-year Treasury auction. The high yield in this year’s auction, conducted on May 12, was 1.684%. Add to that rate another 2.05% for undergraduate loans, 3.6% for graduate student loans and 4.6% for all PLUS lines and you get the actual loan rates for the upcoming academic year.

The new, higher rates will cost student loan borrowers as much as $590 per $10,000 in loans repaid over 10 years, according to Kantrowitz.

Outstanding student loan debt in the first quarter of 2021 totaled $1.58 trillion, according to the Federal Reserve Bank of New York, up $29 billion from a year ago, but loans that were more than 90 days delinquent or in default fell sharply. About 6.2% of aggregate student debt was more than 90 days delinquent or in default in the first quarter, a low level that reflects the status of loans eligible for forbearance under the CARES Act.

As for college costs in the upcoming academic year, Kantrowitz says some colleges are limiting tuition increases because of the economic effects of the coronavirus pandemic. He said he wouldn’t be surprised if the average college tuition increase was about 1% for public colleges and 2% for private colleges, which would be similar to last year’s hikes, along with a 1% increase in room and board.

The University System of Georgia (USG), for one, has announced no tuition increases for 2021-2022, after no increase in the current school year.

More aid would be available to higher education if President Joe Biden’s American Families Plan is passed by Congress. The plan provides free tuition at community colleges and increases the maximum Federal Pell Grant by about $1,400, but it does not provide for student loan forgiveness.