Student-loan interest rates are increasing nearly a full percentage point starting in July, showing no end in sight to the debt crisis

·2 min read
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  • The Federal Student Aid office announced new interest rates for student loans starting in July.

  • Rates are increasing by almost a full percentage point from last year.

  • The pause on student loan payments and no interest accrual is set to resume in September.

  • See more stories on Insider's business page.

Although the pause on student-loan payments, accompanied by zero interest accrual, is continuing through September, the Federal Student Aid (FSA) office announced new increased interest rates for the next year. It's another sign that the $1.7 trillion student debt crisis, which President Joe Biden vowed to address in his campaign last year, will just continue to grow.

Interest rates reset each July, and this year, interest on student loans will increase by nearly a full percentage point. The FSA posted the new interest rates for direct subsidized and unsubsidized loans for undergraduates, direct unsubsidized loans for graduates and professionals, and direct PLUS loans for parents and graduate or professional students.

Here are the new interest rates to be disbursed after July 1, 2021 and before July 1, 2022:

  • Direct subsidized and unsubsidized loans for undergraduates: 3.73%, up from 2.75%;

  • Direct unsubsidized loans for graduates and professionals: 5.28%, up from 4.3%;

  • Direct PLUS loans for parents and graduate or professional students: 6.28%, up from 5.3%.

Forbes reported that the new interest rates will cost borrowers as much as an additional $590 per $10,000 borrowed on a 10-year repayment term, but despite the increase, the rates are still relatively low compared to previous years.

Biden extended the pause on student loan payments, with zero interest, through September to provide pandemic relief, and Insider previously reported that the payment pause has significantly helped borrowers stay financially afloat during the pandemic.

However, payments are set to resume in a few months, and while Education Secretary Miguel Cardona said in May he has not ruled out further extending the pause, no action has been taken yet to do so.

A report released on April 5 by Upgraded Points - a travel research group - found that the pause on payments only saved borrowers an average of $2,001 in interest and noted that "while those couple thousand dollars could have been imperative in keeping borrowers in the black during pandemic-related hardships, these borrowers are still far from climbing out of the holes they dug in college."

That's why Democrats are pushing for $50,000 in student debt cancellation per borrower, arguing that it would provide immediate relief to borrowers if Biden used his executive authority to do so.

"Canceling $50,000 in student loan debt would be one of the most effective executive actions that President Biden could take to provide a massive stimulus for our economy and help close the racial wealth gap," Massachusetts Sen. Elizabeth Warren wrote on Twitter on Monday. "Let's do this."

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