Interest rates on student loans are rising yet again. It'll make things a lot more expensive for new borrowers this fall.

Ayelet Sheffey
·3 min read

  • Interest rates on federal student loans are increasing for the upcoming school year.

  • Based on the latest Treasury auction, borrowers are set to see the highest rates in over a decade.

  • The rates are fixed, so they will only apply to borrowers taking out new loans this fall.

New student-loan borrowers are set to see the highest interest rates in over a decade.

Wednesday's Treasury auction dictated the new interest rates for federal student loans from July 1, 2024, to June 30, 2025 — and they're set to increase significantly for borrowers taking out new loans for the upcoming school year.

According to calculations based on the Treasury auction, these are the interest rates for federal student loans in the 2024-2025 academic school year:

  • Undergraduate direct subsidized and unsubsidized loans: 6.53%, up from 5.50%

  • Graduate and professional direct unsubsidized loans: 8.08%, up from 7.05%

  • Graduate and parent PLUS loans: 9.08%, up from 8.05%.

Interest rates on student loans are fixed, and borrowers will pay the interest rate that was in place the year their loan originated for the duration of their repayment period. So, even if interest rates on student loans are increasing, borrowers who took out loans in years when the rates were lower will still pay the lower interest rate.

However, the high rates for the upcoming school year will likely make student loans more difficult for borrowers to pay off. As Business Insider has previously reported, interest is a primary reason many borrowers have seen their balances surge — if a borrower falls behind on payments or has to enter forbearance, interest continues to accumulate, which could make it difficult for borrowers to even touch their principal balance.

These rate increases are a response to economic conditions in the US. Starting in March 2022, the Federal Reserve hiked interest rates 11 consecutive times before pausing in September to help inflation reach the 2% target. The central bank could cut interest rates later this year, though, meaning rates for federal student loans have a chance of decreasing next year.

Fed Chair Jerome Powell has emphasized, though, that he's not yet confident about cutting rates this year and it'll take more economic data to show the economy is moving in the right direction.

But for now, new borrowers should be aware of the costs that accompany their debt. President Joe Biden's Education Department has made some efforts to address surging interest — for example, its new SAVE income-driven repayment plan has a provision that would eliminate remaining interest on balances if a borrower stays consistent on their monthly payments.

Additionally, Biden's new student-debt relief plan, which is in its public comment period, aims to cancel up to $20,000 in unpaid interest for borrowers. The Education Department plans to begin implementation this fall, but the election — and likely legal challenges — could push back that timeline.

Read the original article on Business Insider