Impacts of the Potential Stafford Loan Rate Increase | 06.11.13

Posted in Financial Aid, News, Stafford Loan, Student Loans By Student Loan Network Staff

Student Loans in the MediaWith the recent legislation involving the subsidized student loan interest rate, many have begun to express concern towards the fact that if Congress is not able to reach an agreement by July 1, subsidized Stafford loan interest rates will automatically increase from 3.4% to 6.8%.  In the process, many news sources have erroneously been reporting that this increased interest rate would yield an additional $1,000 in annual debt for the average borrower. However, this figure is much lower in reality.

Using the loan repayment calculator from Finaid.org, we can begin to calculate more-accurate rates (though still estimates). Assuming a student borrows $23,000 over the course of four years—the maximum amount that can be taken out for undergraduate studies—the annual increase will be less than half of what has been reported.

Here is a breakdown of how much a 3.4% increase would cost borrowers:

Repayment Time (Years) Annual Accrued Interest – 3.4% Annual Accrued Interest – 6.8% Interest Increase
10 $444 $908 $465
15 $446 $941 $495
30 $470 $1,051 $581

As you can see, this potential increase in the interest rate will increase your loan payments, but not by $1,000 per year.  If you were to take out the maximum amount of subsidized loans, this increase would cost you an additional $450 to $600 annually, and that’s only if you take out the MAXIMUM amount of subsidized loans.

Both Democrats and Republicans agree that student loan rates are in dire need of an overhaul, though how this will happen is still up in the air. It is, however, important to keep the facts in perspective while the future of these rates are decided.

 

Related: Smarter Solutions for Students Act


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One Response to “Impacts of the Potential Stafford Loan Rate Increase”

  1. Kevin Watts says on June 12, 2013 at 8:56 pm:

    Good post. Using that calculator is very handy. However, looking at those numbers the rate is almost double which is still very scary.

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