Interest rates on federal student loans increased by more than two percentage points at the beginning of July, jumping from 3.71% last school year to 3.73%. Federal loan rates are fixed, and each year the loans have a new fixed rate, resetting on the first of July. Parents and students have several options available to them when determining how to pay for the school year ahead.
The new rate is based on the yield of the 10-year Treasury Note auction in May, a formula set by the U.S. Department of Education. The following are the newest federal student loan rates as of July 1, 2021:
- Direct subsidized and direct unsubsidized loans for undergraduate: 3.73%
- Direct unsubsidized loans for graduate or professional: 5.28%
- Direct PLUS loans for parents and graduate or professionals: 6.28%
This represents an increase of 2.05 percentage points from the 2021 to 2022 school year, according to the Department of Education. Another 3.6 points were added for graduate student loans, and 4.6 points for PLUS loans.
There are several options available to student loan borrowers as interest rates rise, including scholarships and grants, federal student loans and private student loans. To compare options for private student loans and see what option works best for you, visit Credible to find your personal interest rate for private student loans.
1. Pay for school by taking out a private student loan
Although student loans interest rates are increasing, they are still historically low. As recently as the 2018 to 2019 school year, rates for undergraduate federal student loans reached 5.05%. And while private student loan rates are typically higher than federal rates, they are also near all-time lows.
"When considering private student loans, know your options to make sure you’re getting the best outcome for your unique situation," said Credible Chief Revenue Officer Robert Humann.
If you're considering taking out a private student loan, make sure you compare several options. Visit Credible to find your interest rate for a student loan from multiple lenders at once.
2. Look into scholarships and financial aid grants
Before applying for any type of student loan, borrowers should look at their eligibility for scholarships and other student aid – like grants – through the Free Application for Federal Student Aid (FAFSA).
"This is the season in which students and parents are making difficult decisions on how to pay for college as the fall semester is approaching," Humann said. "Take advantage of grants, scholarships, financial aid and consider work-study opportunities before looking at federal and private loans."
If you are looking for ways to make up the difference for college tuition, and you're not eligible for grants, consider a private student loan. Head to Credible to get prequalified without affecting your credit score.
3. Take out a federal student loan
The average cost of in-state tuition prices for national universities has risen 72% from 2008 to 2021. For the 2020 to 2021 school year, tuition rose to $41,411 at private colleges, $11,171 for state residents at public colleges and $26,809 for out-of-state students, according to data from U.S. News' annual survey.
Federal student loans are also generally a better option than private student loans. Despite rising rates, they typically have lower interest rates than private loans. And unlike private student loans, they qualify for the current pause on federal student loan payments during the COVID-19 emergency until September and could be included in any student loan forgiveness programs.
But federal loan programs max out at $5,500 for dependent first-year undergraduate students. If you do not qualify for federal student loans or if you need to borrower more than the federal limits, consider taking out a private student loan. Visit Credible to compare multiple options and speak to a student loan expert to get all of your questions answered.
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