Federal Student Loans To Get the Highest Level of Interest Rates By End of Year

Student Loans - Federal Reserve

The interest rate on many new federal student loans is set to increase to its highest level in more than a decade next year as lenders throughout the economy seek higher returns for borrowing money.

On Tuesday, the U.S. Department of Education announced on its website that the rate for undergraduates will rise to 6.53% from the current 5.5%.

According to Mark Kantrowitz, an expert on student loans, this change translates to $113.72 for every $10,000 borrowed, compared to $108.52 for the past year.

For graduate students, the rate is increasing from 7.05% to 8.08%, which equates to $121.77 per $10,000 borrowed, up from $116.36.

Student Loans – Federal Reserve

These rate levels are determined by a pre-set formula that adds percentage points to the current yield on 10-year Treasury notes, depending on the loan type and recipient.

The interest rate on the most recent auction of 10-year notes reached 4.483%. The 10-year note is considered a benchmark rate, reflecting investor appetite for risk given the current economic conditions.

Currently, inflation is the most significant factor in the economy, and lenders are seeking higher rates to counteract its effects.

Student Loans

It remains uncertain whether the Biden administration could intervene to freeze or reduce rates from current levels. In 2013, the Obama administration signed a bipartisan bill to retroactively lower rates.

resident Biden has prioritized reducing the burden of student loans and has introduced a new debt cancellation plan after the Supreme Court rejected a previous one.

A spokesperson for the Biden administration did not immediately respond to a request for comment. The new rates will not affect outstanding student loans or private student loans, which generally have much higher interest rates.

Jessica Smith
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