Interest rate hike on federal loans makes college even pricier

Jul 31, 2017

There’s currently $1.4 trillion dollars owed in student debt. And that number is only growing. On July 1, student loan interest rates increased by three-quarters of a percentage point. 

Interest rates on federal student loans have increased this month as a result of the U.S. Department of the Treasury auctioning off ten-year notes. Over the life of student loans taken out for the 2017-2018 school year, the increase will mean an extra several hundred dollars in repayments. An undergraduate borrowing $5,000 for the fall semester would eventually have to pay back $7,400 dollars.

Patrick Scott is the financial aid director at Cuesta College in San Luis Obispo. Scott said roughly five percent of Cuesta College’s 11,000 students take out federal loans. He said the rate increase is not as significant as one might think.

“Although it was an increase compared to last year, over the last 10 years, interest rates on these loans have been mostly higher than the current rate we’re looking forward to in this year coming up,” Scott said. “We’re just kind of moving back into the middle, these aren’t extremely high rates. I’m not too worried about the increase.”

But Mike Miller, financial aid director at University of California Santa Barbara (UCSB), said the increase is something to keep an eye out for.

“Seeing an increase in interest rates is a little bit disheartening,” Miller said.

About 38 percent of UCSB undergrads and graduate students take out loans, with the typical UCSB student graduating with about $20,000 dollars in debt.

“We want to make sure needy students have a clear pathway for going to college,” Miller said.

At Cal Poly, just over 7000 students, roughly one-third of the school’s total student population, take out federal loans. Cal Poly declined to speak with KCBX for this story, but provided the data on the number of different loans borrowed by current Cal Poly students.

Unlike private student loans, student loans from the federal government at least allow for some repayment flexibility. Miranda Marquit is with Student Loan Hero, a for-profit company that consolidates student loans.

“With the federal student loans, some have special repayment programs that allow you to have repayments based on income after you get done with school. A lot of students graduate and don’t find a high-paying job right away,” Marquit said.

The recent student loan rate increase will make higher education that much more pricey.

“In a lot of states, college is unaffordable for a lot of people. And we’re not just talking about the low-end of socio-economic school,” Marquit said. “It’s becomingly increasingly difficult to be able to afford college even for the middle class.”

Graduate students will also see the uptick in student loan interest rates. A recent Washington Post report said a graduate student who borrows $20,000 this year will end up paying an extra $833 dollars over the next decade.

UCSB’s Mike Miller said for graduate student loans, the interest rate increased from 5.4 to 6 percent at the start of the month.

He said it will just add additional debt "to an already - I think - out of control student loan debt nationally; I think it’s certainly a big concern,” Miller said.

The 2017 increase will sunset in June of 2018, because four years ago, Congress voted to reset federal student loan interest rates each year.