Beware, new student loan borrowers: Interest rates are about to jump

Beware, new student loan borrowers: Interest rates are about to jump

Transcript¹

With so much talk these days of when or whether President Biden will broadly cancel student debt – and with payments and interest on that debt paused for more than two years – it's easy to forget that the federal student loan system remains² unchanged. And one part of that system is about to deliver a shock to many borrowers: Interest rates are going up, likely by quite a bit.

"We're going to get bad news," says Robert Kelchen, an expert on higher education finance at the University of Tennessee, Knoxville.

Interest rates on federal student loans are fixed³, like a mortgage. A student who took out a new, undergraduate loan for this school year got a good interest rate: 3.73%. And that loan will remain at that rate for the life of the loan.

The wrinkle, says Kelchen, is that "every year, interest rates reset⁴ based on the 10-year Treasury⁵ yield, plus some additional amount," a premium⁶ added to help cover the government's costs.

That means borrowers who need help next year will have to take out a new loan at a new interest rate. Federal student loan rates change every May, based on the U.S. Treasury Department's auction⁷ of 10-year notes, which is set for 1:00 pm ET on Wednesday, May 11.

And that's bad news for borrowers because, this year, as with mortgage rates and virtually everything else, student loan interest rates are sure to rise.

While we don't know exactly how much they'll rise, we can make some educated guesses by applying some basic math, spelled out in federal law, to the current 10-year Treasury rate, 3.06% at the time of writing.

For example, undergrads' current 3.73% interest rate would jump to 5.1%.

What's the difference between 3.73% and 5.1%? On a loan of $5,500 (the max for a first-year, dependent undergrad), a borrower would end up paying $435 more in interest over 10 years.

The change could have an even bigger impact for graduate students and parents, who are allowed to take out larger loans but at higher rates than undergraduate borrowers (not to mention having to pay a larger loan fee upfront as well, 4.2% vs. 1.1%).

Want to find an affordable⁸ college? There's a website for that

EDUCATION

Want to find an affordable college? There's a website for that

Based on the latest 10-year Treasury rate, interest on loans for grad students is likely to jump from the current 5.28% to around 6.66%, and for parent PLUS loans from 6.28% to around 7.66%.

These loans aren't capped like undergraduate loans and are only limited by a school's price tag, which helps explain why the average yearly Parent PLUS loan tops $14,000. What difference would this potential interest rate hike make on that kind of loan?

Over 10 years, a parent would end up paying an extra $1,194 in interest.

The higher rate for parents, combined with larger allowable debt loads and less generous access to income-driven repayment⁹ options, has driven many families to financial ruin.

For potential borrowers wondering if they could do better on the private loan market, "just remember, the federal student loan program is in large part making loans without any sort of credit check. Everybody gets the same terms. It's kind of no questions asked," says Jason Delisle, a senior policy fellow at the Urban Institute.

And yes, Delisle says, "the rate is going to be a lot lower than what you would get in the private market for a similar kind of loan – if you could even find something like it."

To see how much more you might have to pay in interest, there's no shortage of student loan calculators out there, including this one and this one.

NPR is committed to reporting on pressing issues that matter to you, like student loans. Sign up for our Education newsletter to stay up to date. You can support NPR's trusted, vital coverage¹⁰ by donating to your local NPR station today.

1 transcript   

n.抄本，誊本，副本，肄业证书

参考例句：

• A transcript of the tapes was presented as evidence in court.一份录音带的文字本作为证据被呈交法庭。
• They wouldn't let me have a transcript of the interview.他们拒绝给我一份采访的文字整理稿。

2 remains   

n.剩余物，残留物；遗体，遗迹

参考例句：

• He ate the remains of food hungrily.他狼吞虎咽地吃剩余的食物。
• The remains of the meal were fed to the dog.残羹剩饭喂狗了。

3 fixed   

adj.固定的，不变的，准备好的；(计算机)固定的

参考例句：

• Have you two fixed on a date for the wedding yet?你们俩选定婚期了吗？
• Once the aim is fixed,we should not change it arbitrarily.目标一旦确定，我们就不应该随意改变。

4 reset   

v.重新安排，复位；n.重新放置；重放之物

参考例句：

• As soon as you arrive at your destination,step out of the aircraft and reset your wristwatch.你一到达目的地，就走出飞机并重新设置手表时间。
• He is recovering from an operation to reset his arm.他做了一个手臂复位手术，正在恢复。

5 treasury   

n.宝库；国库，金库；文库

参考例句：

• The Treasury was opposed in principle to the proposals.财政部原则上反对这些提案。
• This book is a treasury of useful information.这本书是有价值的信息宝库。

6 premium   

n.加付款；赠品；adj.高级的；售价高的

参考例句：

• You have to pay a premium for express delivery.寄快递你得付额外费用。
• Fresh water was at a premium after the reservoir was contaminated.在水库被污染之后，清水便因稀而贵了。

7 auction   

n.拍卖；拍卖会；vt.拍卖

参考例句：

• They've put the contents of their house up for auction.他们把房子里的东西全都拿去拍卖了。
• They bought a new minibus with the proceeds from the auction.他们用拍卖得来的钱买了一辆新面包车。

8 affordable   

adj.支付得起的，不太昂贵的

参考例句：

• The rent for the four-roomed house is affordable.四居室房屋的房租付得起。
• There are few affordable apartments in big cities.在大城市中没有几所公寓是便宜的。

9 repayment   

n.偿还，偿还款；报酬

参考例句：

• I am entitled to a repayment for the damaged goods.我有权利索取货物损坏赔偿金。
• The tax authorities have been harrying her for repayment.税务局一直在催她补交税款。

10 coverage   

n.报导，保险范围，保险额，范围，覆盖

参考例句：

• There's little coverage of foreign news in the newspaper.报纸上几乎没有国外新闻报道。
• This is an insurance policy with extensive coverage.这是一项承保范围广泛的保险。