3 Things You Should Know About the Stafford Loan Interest Rate Increase | 07.01.13

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

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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8 Responses to “3 Things You Should Know About the Stafford Loan Interest Rate Increase”

  1. Mia says on July 22, 2013 at 7:15 pm:

    If Congress passes a bill to lower the rates, let’s say, this week – will it affect students who applied to loans after the date they signed the bill or after July 1, 2013? Thanks!

    Reply To This Comment
  2. kd94025 says on July 17, 2013 at 4:57 pm:

    Hmmm – using my handy dandy excel loan payment calculator – if I have a 10 year, $10,000 loan at 3.4%, the monthly payment is about $98. But, if I change the interest rate to 6.8%, the payment increases to about $115. (Or, for math geeks, a 17% increase in payment cost, hardly insubstantial). That is not “5 or 6 dollars per month.” Since this is a site that is facilitating getting these loans, I’d be happier if they could do the math. Or, they should say that they are showing the impact net of the subsidy – which, of course, only applies to the subsidized loans, not the unsubsidized loans. I advise people to write to their congressional representatives.

    Reply To This Comment
  3. Wesley says on July 16, 2013 at 6:18 pm:

    I can imagine its frustrating for students looking to secure loans for this fall. Even if the increase isn’t significant to some people in terms of payment amount, it can definitely feel like a set back for students.

    Hopefully it will give them some peace of mind to know it’s just resetting to what the rates were back in 2006-08. And people like me who secured before that could end up paying as much as 8.25%.

    So things could be worse.

    Reply To This Comment
  4. siserir says on July 15, 2013 at 12:56 pm:

    what happen to the loan originating now , after few months will decrease

    Reply To This Comment
    • Student Loan Guru says on July 15, 2013 at 3:30 pm:

      Newly-originated Subsidized Stafford loans now hold an interest rate of 6.8%. It’s possible this will decrease in the future, but as of right now, the rates are fixed.

      Reply To This Comment
  5. Cee says on July 10, 2013 at 9:02 pm:

    Why did congress allow it to double and not just increase it by maybe a 1/2 point.

    Reply To This Comment
  6. Rex says on July 4, 2013 at 11:07 am:

    So will we be able to refinance per say this bogus 6.8 loan later to a reasonable yet inflated 3.4? Unreal how congress can expect so much yet deliver so little!!!!!!!!!!!!!

    They wonder why the occupy movement happened!

    Reply To This Comment
  7. Ok says on July 2, 2013 at 3:14 pm:

    Sure, okay. Nice to know that I should just sit back and relax while my future is being fucked up by other people in a way I have no power in influencing.

    Reply To This Comment

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