On July 1 this year federally subsidized student loan interest rates will increase from 3.4% to 6.8% as a result of the failure of Congress to pass legislation to keep the rates lowered.
The news is bad, but there is no need to panic. Keep these things in mind.
- This increase does not affect loans taken out before July 1, 2012. Loans already secured remain at the fixed rate.
- Not all federal loans are affected by the rate increase. Only the federally subsidized Stafford loan program is affected, that is, loans based on financial need. About 1/3 of undergraduates have such a loan.
- For those entering college or those in college who need to continue to borrow it is estimated—based on a loan of $23,000 (the maximum amount that can be granted) over 10 years—the rate increase will add about $5,000 to the cost of a loan.
- Unsubsidized Stafford loans for undergraduates, which are not needs-base, remain as they were at 6.8% and have not gone up. The same is true for unsubsidized Stafford loans for graduate students.
- Even at 6.8% the Stafford loans are better than private loans. Although you may find some loans that have a lower interest rate, they may also be variable and if not fixed can cost a lot more in the long run. Also, Stafford loans are paid by the government while the borrower is in school, which means interest is not accruing which will keep the overall cost of the loan down.
All this said, it would be nice if the loan rates did not increase.