Prepare for higher interest rates on student loans

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Prepare for higher interest rates on federal student loans for the next academic year, and not just because rates are currently zero due to an extended hiatus due to the coronavirus pandemic. Interest rates on federal student loans will rise because long-term interest rates rise.

Federal student loan rates are based on a formula tied to the highest yield of the 10-year treasury bill auction in May. This auction this year is tentatively set at May 12.

Undergraduate loan yields are pegged at 2.05% above the high yield at the 10-year Treasury bill auction in May. Graduate student loan rates are set at 3.6% above the May high-yield auction rate, and Parent PLUS loans are set at 4.6% higher. If the high yield on the 10-year Treasury auction in May is 1.5%, for example, the rate on federal undergraduate loans would be 3.55%.

That’s well above the 2.75% set for the current academic year, but that rate, along with the interest rate on all other federal student loans, was reduced to zero when the federal government cut back. issued a moratorium on student debt payments beginning in mid-March 2020. The moratorium was due to expire on September 30, 2020, but was extended three times – twice by President Donald Trump and once by President Joe Biden. It now expires on September 30, 2021.

Borrowing in the current academic year is much lower than it typically is due to the pandemic, says student aid expert Mark Kantrowitz. Many students have taken distance education from home and do not pay for room and board or pay less for these fees, having received partial refunds on past payments.

Student loan borrowing will increase over the next school year if schools open for in-person instruction in the fall, as many are expected to do, Kantrowitz says.

Decision day changes

Other changes for incoming students this year: a later decision day, falling after May 1, the traditional deadline for students to confirm acceptance into a particular school; and a different competitive environment to secure a place in many top rated schools.

Following a Federal court decision in a lawsuit by the U.S. government against the National Association for College Admission Counseling, colleges can no longer enforce the undergraduate recruiting rule, which limited colleges’ ability to offer additional financial aid or other incentives in certain circumstances.

The limits applied to a potential incoming student who had not responded to the letter of acceptance by May 1, refused to agree to attend before May 1, or had not withdrawn their application or filed. funds to secure his place before May 1. government won the case on antitrust grounds.

Some schools will still meet the May 1 deadline, but some are relaxing it, according to Kantrowitz.

Some of the most prestigious colleges in the United States have pushed back acceptance dates for another reason: an overwhelming increase in the number of applications. Some of these schools and others have also suspended the mandatory use of standardized test scores in admissions applications and seek to broaden the diversity of the student body. Both approaches open the door for more students to apply and the acceptance of a more diverse group of students.


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