Student loan interest rates are on the rise!

The Federal Direct Student Loan interest rates for the school year 2018-2019 have been determined by the government and will increase by 0.595 percentage points for new loans made after July 1, 2018.  These rates should always be considered when deciding how to pay for college.

The new student loan interest rate is 5.045 % for the Undergraduate Direct Loan program, and the Graduate Direct Loan rate will be 6.595%.  The Federal Grad PLUS and Federal Parent PLUS loan rate will be 7.595%.

The federal student loan interest rates change each year on July 1st, and with rates going up it’s more important than ever for students and parents to understand how these rates are calculated and the impact they have on long-term student debt.

The Federal Student loan interest rate is based on the May Treasury note auction each year plus the Department of Education add-on fees, and this revised rate impacts direct subsidized, direct unsubsidized and direct plus loans. These interest rates are fixed for the life of the loan based on the type of loan borrowed. The rate could change if the loans are consolidated at some time in the future but will be a factor in the consolidated interest rate.

In addition to the interest rate, there are processing fees associated with these loans, and these fees change depending on the type of loan the student or parent is using.

The following table provides the interest effective for new Direct Loans disbursed starting July 1, 2018, and before June 30, 2019.  The federal loan fees are also identified.

loan table

Projecting Your Student Loan Debt

So – how do these interest rates and fees impact loan repayment in the future? Here is the repayment amount based on a 10-year amortization repayment plan per $10,000 borrowed using the new federal loan rates. This does not include added fees or accumulated interest.

These are monthly payments:

Direct Undergraduate @ 5.045% = $106.30 per $10,000
Direct Graduate @ 6.595 % = $111.40  per $10,000
Direct PLUS @ 7.595 % = $119.20 per $10,000

You may have seen in the news that student debt is now over $1.5 trillion dollars! Before your family decides to accumulate college debt, a good practice is to estimate the total debt needed to graduate from college or graduate school. This early debt planning enables your family to plan better and make financial decisions that include manageable debt. Lack of planning has been one of the reasons that the student debt crisis has continued to grow.

Fortunately, PayForED has a solution to this problem. The In-College Payer helps students and parents plan for life after graduation.  This software organizes the current debt, projects the future debt, calculates the loan repayment options and builds a personal budget.  By having this information, students and parents can see the real net cost and future debt of getting a college education.