Student Loan Rates Inch Up

(Image credit: Allison Michael Orenstein)

published 30 June 2014

First, the bad news: Federal student loans are more expensive this year. Undergraduate Stafford loans disbursed after July 1, 2014, carry a 4.66% interest rate, up from 3.86%. Rates on Staffords for graduate and professional students are now 6.21%, and PLUS loans for graduates and parents now charge 7.21%. But there’s good news: The hikes are manageable.

Valerie Cathcart, a rising senior at Marymount Manhattan College, in New York City, isn’t too worried. She borrowed $6,500 in unsubsidized Stafford loans last year (the loans accrue interest while students are still in school) and plans to take out $7,500 (the maximum for dependent undergraduate third years and above) this year. But the higher rate will add only about $3 per month to a $7,500 loan, or about $345 over a standard ten-year repayment period. And last year’s debt will remain at the old rate of 3.86%—no retroactive rate change there. “I’m just happy that it’s happening my last year of college,” says Cathcart.

Borrowers can’t dodge higher rates, but they can borrow wisely. Reduce the need for loans by tapping savings, working part-time and cutting your cost of living. After graduation, sign up for automatic debits to repay your loans, which will cut your interest rate by 0.25 percentage point. Avoid private loans. Their rates are typically variable, and the loans don’t offer the same protections as federal debt.