As you may have heard, the interest rate on subsidized Stafford loans just increased from 3.4% to 6.8%, effective July 1, 2013. Congress wanted to keep rates down, but the deadline hit before all parties could agree on a course of action. Here’s what you need to know about these changes.
1. It only affects new loans
I’ve received a lot of questions lately about the impact of this rate increase. It seems like graduates everywhere are concerned that their student loan payments will soon be skyrocketing. The good news is, it’s not retroactive — meaning it won’t affect any subsidized loans originated before July 1, 2013. So for borrowers who are currently repaying older loans, don’t worry, you’re in the clear.
However, the new rate will impact loans originated after July 1, 2013. This means any new subsidized loans will have the 6.8% rate. Despite this rate hike, subsidized loans are still a better deal for borrowers because the interest subsidy remains intact.
2. It’s not going to have a huge impact
Should student loans be cheaper than 6.8%? Yes. It’s definitely a high rate for the current market, especially for need-based funding. However, in terms of monthly payments, the impact is actually less than many think. According to Mark Kantrowitz, Publisher of Edvisors.com:
“On a $10,000 student loan, each percentage point increase in the interest rate will increase the monthly loan payment by about $5 or $6″.
3. There’s still time for change
Just because Congress could not agree in time to stop the rate increase, that doesn’t mean a deal is out of the question. It’s entirely possible that an agreement will be made in the upcoming months, overhauling the rate structure entirely.
Make sure to keep an eye on what’s happening in the student loan world, and check back in for more updates on student loan legislation and news.
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