Student loan debt interest rates
Student loan interest rates have gone up for the 2022-2023 school year, proving not even young scholars can avoid the impact of rising interest rates. Barry Bigelow shares why interest rates went up and what students need to know about borrowing and repaying their loans.
Starting July 1, federal student loans distributed will have higher interest rates. Both federal undergraduate direct subsidized and unsubsidized loan interest rates have increased from 3.73% to 4.99%. Interest rates for federal graduate and professional unsubsidized loans and direct Plus Loans have also gone up. It’s important to remember that in the spring of 2020, the Federal Reserve slashed student loan interest rates. As the economy recovers, the Federal Reserve has been raising interest rates.
Our national student loan debt has soared to over $1.7 trillion. Student loans aren’t just a problem for young people. It’s also a growing concern for older Americans. Fifteen years ago, borrowers aged 50 and older accounted for $47 billion of the nation’s student loan debt. By last year, that figure had grown to $289.5 billion. Not only are older borrowers racking up student loan debt by taking out loans for their kids and grandkids, but they are going back to school to earn a degree that would help them maintain and grow their careers. For more information on how to navigate student loans in retirement, follow Great Waters Financial on Facebook and LinkedIn.
If you’re filling out the Free Application for Federal Student Aid, or FAFSA, there is not much you can do to decrease the current interest rates. However, if you plan on using a private lender to secure student loans, consider applying with a co-signer. Ideally, this is someone who has a good credit history. Their good credit can help increase your creditworthiness and hopefully score you a lower interest rate. If you’re in the repayment phase of your loans, consider refinancing if you are able to get a lower rate than when you took out the loan. If you refinance, it’s important to note that you lose benefits like coronavirus forbearance and income-driven repayment plans.
Some tips that Barry Bigelow has for borrowers is to start paying now. If you are financially able to pay your student loans, start paying now. By making your payments now, you not only are working toward paying off the student loans, but your payments are going to the principal, not the interest. Making payments to the principal not only brings down your balance faster, but it can also help reduce the amount of interest that will accrue, ultimately saving you money.
Although we have seen several delays, don’t plan on any more delays to student loan payments. Start making adjustments to your budget now. Look back at the expenses while you were paying your loans. Figure out what has eaten up your extra cash and look for ways to cut back. If you can’t find room in your spending plan to make your student loan payments when the freeze lifts, start looking into your repayment options. There may be an opportunity to switch to income-based payments that could lower your monthly payment depending on how much you earn. Student loan borrowers are willing to work with you. You just have to find the right repayment plan for your situation.
With more and more offices switching to totally remote or hybrid work options, people need to look at their income and expenses and see how working from home has impacted their pocketbooks. Have you saved money on gas, lunches out, dress clothes and coffee shop visits? How can you reprioritize that money within your budget and put it toward your student loan payments? If you’re able to write off home office or work-from-home expenses, you may see a larger tax refund. Consider using that windfall as an opportunity to put more money into your student loan balance.