Interest rates on federal student loans will be the highest in a decade
Congrats, recent grad… You just missed the student-loan rate hike. This week, the US Department of Education set interest rates for federal undergrad student loans to 6.53% for the coming school year. That's the highest rate in at least a decade. FYI: The gov’t sets student-loan rates once a year, and the new rates don’t apply to people with older loans because most federal rates are fixed. Meanwhile, rates for grad students and parents were hiked to over 9%, the highest since 2006.
Summa cum loande: The cost of attending some four-year colleges is nearing $100K/year without financial aid. Incoming college freshmen are expected to have $37K in federal debt by the time they graduate.
Degree anxiety… Student loans are the second-largest contributor to consumer debt after mortgages. While the Biden admin has canceled nearly $140B in student debt, Americans still have around $1.8T in outstanding student-loan balances. Higher federal borrowing rates could pile on the burden. The new FAFSA financial-aid system has been plagued with delays and glitches, leading to a drop in overall applications. To fill the financial gap, families could turn to private lenders, which often charge even higher interest rates than Uncle Sam.
High interest can fuel disinterest… in higher education. Tuition is rising faster than inflation, and higher interest could contribute to already falling enrollment. Freshman enrollment dropped 3.6% last fall as college-tuition costs jumped last year. While US college enrollment has rebounded from the low it hit during the pandemic, it’s still down 8.5% from 2010.