- The Treasury has just announced interest rate hikes on federal student loans starting in July.
- The rates apply to new federal direct loans that undergraduates, graduates and parents take out in July or later.
- Federal student loan borrowers are waiting to hear whether Biden will pass broad relief.
If you plan to take out student loans in July, be prepared to pay more interest.
On Wednesday, the Treasury Department announcement new interest rates for federal student loans taking effect July 1, 2022. This is part of the Treasury’s efforts to fight inflation, and it comes after the
raised rates last week in a range of 0.75% to 1%, the first double rate hike since 2000.
For student borrowers, the hike means that if borrowers repay loans taken out before July, the old interest rates will apply, but for any new loans, the higher rate will come into effect.
Here are the new interest rates for the three types of federal student loans:
- Subsidized and unsubsidized direct loans for undergraduate students: 4.99%, down from 3.73%
- Direct unsubsidized loans for graduates and professionals: 6.54%, down from 5.28%
- And Direct PLUS loans for parents and graduate or professional students: 7.54%, down from 6.28%.
While the hikes aren’t tied to any policy surrounding student loan relief, it comes as millions of federal borrowers wait to hear whether Biden will embrace broad debt forgiveness. Biden recently said a decision on relief would be made in the coming weeks, and press secretary Jen Psaki confirmed to reporters that while an amount of relief has yet to be decided, it will target borrowers earning less than $125,000 per year.
While many Republican lawmakers have criticized student loan forgiveness, arguing that debt should be repaid, many student loan borrowers have repaid the debt they borrowed, but are still burdened with monthly payments due to l accrual of interest. Insider spoke to dozens of borrowers whose current balance is significantly higher than what they originally borrowed, keeping them in a repayment cycle.
Reid Clark, for example, took out PLUS loans — the most expensive type of federal loan — to send his five children to college, and he partly blames the high interest rates that kept him stuck in debts.
“I’m very concerned about my ability to repay loans in my remaining working years, and it’s going to scare me even more in a few years when I retire with very limited income,” Clark previously said. to Insider.
Some lawmakers have urged Biden to act on soaring interest in student loans. In December, 14 Democratic senators, including Georgia Sen. Raphael Warnock, called on Biden to continue waiving student loan interest even after resuming payments (Federal student loan payments were suspended, with 0% interest). interest, for the duration of the pandemic).
“Topping up interest on student loans can be a daunting challenge for borrowers with the lowest incomes or the most heavily in debt,” the lawmakers wrote.
For now, student loan repayments are expected to resume after Aug. 31, and federal borrowers are waiting to hear what relief they might get before then.