Student loan interest rates are doubling!
Should we panic yet? Or is this just the scare of the month?
It’s a little of both, actually.
Here’s how the student loan interest rate change may affect you.
If you are applying for a student loan
The new, higher student loan rate applies to all Stafford loans made on or after July 1, 2013, for the 2013-2014 academic year.
The new student loan interest rate is 6.8% – twice the old rate of 3.4%.
Approximately 7 million people take out these loans every year (Tweet this!).
We’ll see if that number changes with higher interest rates.
Even if you intend to apply for a loan this year, however, you may never actually pay 6.8% on your student loan.
Such a sudden change is unpopular, and politicians on both sides of the aisle are anxious to come to a better agreement.
If they do, they are likely to make a lower rate retroactive to July 1.
If you already have a student loan, or you are paying off a student loan
The higher rates do not affect Stafford loans that are already in place.
Of course, the change does not affect you if you have other types of student loans.
Stafford loans are still not a bad deal, even if the new, higher rate sticks. Where else can you get a 6.8% loan that is not secured by a house or car?
Stafford loan rates are fixed, and you don’t have to make payments until graduation.
The current interest rate for Federal Parent PLUS Loans is higher at 7.9%.
The increased Stafford loan rate does make other ways of borrowing for tuition costs suddenly become more attractive, however.
A student or parent may be able to take out a home equity loan, borrow from a relative whose savings are languishing in a bank account that pays practically nothing, or take money from savings.
When student loan interest rates were low and jobs relatively plentiful at graduation, it was easy to become complacent about taking on more and more debt for an education.
If anything good comes from this jump in interest rates, however, it may be that we are reminded to measure the costs and benefits of education loans more carefully – the same way we do with any other debt.
Cut back on loans by planning ahead, shopping around for the best deal, and considering the risks.
For some people, that may mean taking better advantage of College Level Examination Program (CLEP) tests, and going to community college the first year or two.
Others may take a year off college and save money for tuition. Everyone should shop around for colleges that provide the best education for the best price.
Don’t give up on your dreams. While you’re following those dreams, however, you’ll never regret taking as few loans as you possibly can.
When you chose a college, how big a part did tuition levels play in your decision?