Student loan interest rates to rise from July 1

0
17

[ad_1]

Interest rates on new federal student loans and Parent PLUS loans will rise by almost a full percentage point on July 1, 2021.

Why are interest rates going up, given that the pandemic is still ongoing?

Federal student loan rates are tied to a statutory formula

Interest rates on federal loans are fixed, but a new flat rate is set for new loans every year.

Interest rates on new federal education loans are updated every July 1 based on the high yield from the last 10-year Treasury bond auction in May.

This formula is established by law and is not subject to the discretion of the US Department of Education. Higher Education Act 1965 [20 USC 1087e(b)(8)] defines interest rates as follows:

  • Federal Direct Stafford Loans (BSc): high yield + 2.05% with a maximum rate of 8.25%
  • Federal Direct Stafford loans (for graduates): high yield + 3.6% with a maximum rate of 9.5%
  • Federal Direct PLUS (Parent PLUS and Grad PLUS) loans: high yield + 4.6% with a 10.5% cap

Since the high yield at the 10-year Treasury bond auction on May 12, 2021 was 1.684%, the new interest rates will be 3.734%, 5.284% and 6.284%, respectively.

Although these interest rates are higher than last year’s record lows, they are still among the lowest interest rates in the history of federal student loan programs.

Consequences of suspension of payments and waiver of interest

The suspension of payments and waiver of interest will expire on September 30, 2021. interview With the Educational Writers Association (EWA), on May 20, 2021, U.S. Education Secretary Miguel Cardona announced that the U.S. Department of Education is considering further extensions.

Until the payment pause and interest rate waiver expire, the interest rate on all eligible federal loans will temporarily remain at 0%. Upon expiration of the suspension of payments and the interest exemption, interest rates will revert to the previously specified applicable rates.

Options after payment suspension and interest waiver expiration

Borrowers who are still experiencing financial difficulties after the expiration of the suspension of payments and the waiver of interest will still have several options, some of which will waive all or part of the accrued interest.

These options include economic hardship deferral, unemployment deferral, general deferral, and income-based payment plans.

During the grace period, the federal government pays interest on subsidized loans. Interest on unsubsidized loans remains the responsibility of the borrower. If this interest is not paid as it accrues, it will be added to the loan balance at the end of the grace period.

During the grace period, the federal government does not pay interest on loans, subsidized or unsubsidized.

Borrowers who have no or low income may be eligible for the equivalent of a suspension of payments using an income-driven repayment plan. If your Adjusted Gross Income (AGI) is less than 100% of the Poverty Line (ICR) or 150% of the Poverty Line (IBR, PAYE, and REPAYE), your monthly payment will be zero. If you already have an income-driven repayment plan and have lost your job or are facing a pay cut, you can ask your loan provider to reconfirm your income early. The lender may ask for a copy of the termination notice or proof of recent receipt of unemployment benefits.

Some of the income-based repayment plans may include full or partial interest relief. The federal government will pay accrued but unpaid interest on the subsidized loans for the first three years in accordance with IBR, PAYE and REPAYE repayment plans. In addition, the federal government will pay half of the accrued but unpaid interest on unsubsidized loans during the first three years in accordance with the REPAYE repayment plan. After the first three years, the federal government will pay half of the accrued but unpaid interest on subsidized and unsubsidized loans over the remaining maturity in accordance with REPAYE’s repayment plan.

[ad_2]

Source link