The interest rate on federal student loans will rise to the highest level in 12 years

Washington
CNN
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Borrowing to pay for college is about to get more expensive: The interest rate on new federal student loans for undergraduates during the upcoming 2024-25 academic year will be the highest in 12 years.

This will be the interest rate on your federal student loan 6.53% for undergraduate studentsup from 5.5% for the current year. The interest rate has not been this high on any college loans since the Academic year 2012-13.

Postgraduate students will see an interest rate of 8.08% during the next academic term Overall, up from 7.05%. PLUS loans, available to both parents and graduate students, will come with an interest rate of 9.08%, up from 8.05%.

Rates for graduate students and parents have not been this high since before July 2006, when the government began setting fixed rates for student loans. Before that, most federal student loans had variable interest rates.

Higher interest rates on student loans will make it more expensive for borrowers to repay borrowers — and could spell trouble for President Joe Biden as he works to win over as many borrowers as possible. Young voters As much as he can before the November election.

To be clear, the president does not set federal student loan interest rates himself. Rates are set annually and are based on the 10-year Treasury bond auction held in May each year. The increase isn’t a complete surprise since the Fed did it It kept the country’s benchmark interest rate at its highest level in 23 years While waiting for inflation to cool.

Biden has already done that Eliminated more federal student loan debt — nearly $160 billion — compared to any other administration, but debt relief for college graduates does not make education less expensive for current and future students.

However, Biden’s new student loan repayment plan, Known as SAVE (Savings on Value Education)can make it easier for current and future borrowers to pay off their federal student loan debt, despite higher interest rates.

The income-driven repayment plan, launched last year, can lower monthly bills for enrolled borrowers and reduce the amount they repay over the life of their loans.

Additionally, unpaid interest will not accrue as long as the borrower of record makes the full monthly payment. This means that the borrower’s balance will not increase even if the monthly payment does not cover the monthly interest.

The SAVE program is estimated to cost up to $475 billion More than 10 years, according to one estimate, which it is Facing legal challenges From two groups of Republican-led states that say Biden does not have the ability to work out a payment plan.

Since the fall, so has the Biden administration Working on a set of new proposals To provide relief to certain categories of borrowers. The proposals are not as broad as the student loan forgiveness program that Biden initially planned and that the Supreme Court struck down last year.

But if implemented successfully, the new initiatives could eliminate up to $20,000 for borrowers whose balances have grown due to unpaid interest on their loans, regardless of their loans. Enter.

These new proposals have not yet been finalized, but some of them may come into effect this fall.