New federal student loan interest rates for the 2021-22 school year have been announced, and they are higher than the historically low rates borrowers enjoyed in 2020-21. Effective July 1, 2021, federal interest rates for students will increase by almost a percentage point for subsidized direct, unsubsidized direct, and direct PLUS loans.
If you are considering taking out loans this coming school year, here is how your student loans will be affected.
Federal student loan interest rates to rise by almost 1 percentage point
Federal student loan rates are set by Congress each year on the basis of the 10-year Treasury bill. Although each type of federal student loan has its own fixed interest rate, these rates are the same for all borrowers who take out that loan during the school year.
The 2020-21 school year saw particularly low rates due to the coronavirus pandemic. With a better economic outlook this year, federal interest rates have increased for the 2021-22 school year, although they are still quite low. The new interest rates for federal student loans are:
- Direct Subsidized and Direct Unsubsidized Loans (Undergraduates): 3.73 percent.
- Non-subsidized direct loans (graduates and professionals): 5.28 percent.
- Direct PLUS loans (parents, graduates and professionals): 6.28 percent.
For comparison, here’s how the new interest rates compare to those of previous school years.
| Disbursement date | Subsidized and Unsubsidized Direct Loans for Undergraduates | Direct unsubsidized loans for graduates and professionals | Direct PLUS loans |
|---|---|---|---|
| 7/1 / 21–6 / 30/22 | 3.73% | 5.28% | 6.28% |
| 01/07 / 20–30 / 06/21 | 2.75% | 4.30% | 5.30% |
| 01/07 / 19–30 / 06/20 | 4.53% | 6.08% | 7.08% |
| 01/07 / 18-30 / 06/19 | 5.05% | 6.6% | 7.6% |
| 7/1 / 17–6 / 30/18 | 4.45% | 6% | 7% |
| 7/1 / 16–6 / 30/17 | 3.76% | 5.31% | 6.31% |
| 07/01/15 to 06/30/16 | 4.29% | 5.84% | 6.84% |
| 7/1 / 14–6 / 30/15 | 4.66% | 6.21% | 7.21% |
| 7/1 / 13–6 / 30/14 | 3.86% | 5.41% | 6.41% |
Private student loan rates could also increase
Private student loans don’t have a single general interest rate like federal student loans do. Each private lender sets their own minimum and maximum interest rate, and the interest rate they offer borrowers depends on the borrower’s credit rating and history.
Since private lenders set their own interest rates, they are not directly affected by annual changes in federal student loan interest rates. However, private lenders tie rates to overall market trends, so rates tend to change when federal rates do. That was true last year – as federal student loan rates fell due to the pandemic, private student loan rates also fell. The reverse is also true: As the economy begins to recover in 2021, interest rates on private student loans may start to rise.
How will the new interest rate impact your student loans?
The new federal student loan interest rate applies to loans disbursed from July 1, 2021 to June 30, 2022. This means that the new rates will only apply to new loans you take out for the 2021 school year- 2022 – any existing loans you have taken out will not be affected.
Federal student loan interest rates change every year, which means that when you graduate, you might have many different loans with many different interest rates, even if they were the same type of loan. ready.
For example, if you borrowed student loans for each year of your four-year undergraduate degree, you might end up with at least four separate loans by the time you graduate. If you have to borrow multiple student loans for each year, like an unsubsidized direct loan and a grad PLUS loan, for example, you might have even more loans added to your final total.
Suppose you are heading into your fourth and final year of school. Each year you had to borrow $ 5,000 in subsidized student loans directly at the undergraduate level to cover grants and scholarships did not. After graduation, you will automatically begin the standard 10-year repayment plan. Here’s how it works for payments:
| Year | Interest rate | Monthly payment upon graduation |
|---|---|---|
| 2021-2022 | 3.73% | $ 49.98 |
| 2020-2021 | 2.75% | $ 47.71 |
| 2019-2020 | 4.53% | $ 51.89 |
| 2018-2019 | 5.05% | $ 53.16 |
The difference between last year and this year is about $ 2 more per month, or $ 24 more per year. Over 10 years, it’s $ 240 more.
