- The US Treasury Department has raised interest rates on federal student loans.
- These rates will apply to new loans taken out on July 1 or later, but not to existing loans.
- A private lender may offer you a lower rate, but you will lose the benefits of federal loans.
The US Treasury Department recently announced that student loan interest rates will increase for the 2022-2023 school year. These new rates come into effect on July 1, 2022 and you cannot take out new student loans before that date.
Here’s what you need to know about the new student loan rates and their impact on your wallet.
Why are student loan rates rising?
Each May, the Treasury Department changes student loan rates based on the latest 10-year Treasury bond auction. The treasury bill rate has risen this year, so student loan rates are also rising.
Inflation has a huge impact on Treasury bill rates. Last March, inflation rose at its fastest pace in 41 years. As a result, Treasury bill rates – and student loan rates – rise.
What are the new student loan interest rates?
Here are the new rates as of July 1, compared to last year’s rates.
These increases may seem small, but they will translate into higher monthly payments. You could also pay hundreds of dollars more over the life of a loan.
Will this affect my federal student loans?
Yes, the new Treasury Department rates impact all federal student loans issued between July 1, 2022 and June 30, 2023.
Will this affect my private student loans?
No, not directly. The new interest rates only apply to federal student loans.
However, it is possible that private lenders will raise their rates in response to this news, as their rates do not need to be that low to compete with federal rates currently.
“I would shop around, not just for a loan provider or private loans versus federal loans,” says Mark Reyes, a certified financial planner with the Albert personal finance app. Comparing lenders can help you find the best rate — just be aware that private lenders don’t offer the same protections, such as government student loan forgiveness, as federal loans.
How will this affect new loans versus existing loans?
All new federal loans you take out from July 1, 2022 through June 30, 2023 will have these new interest rates. But the higher rates won’t apply to loans you’ve already taken out.
Federal student loans are fixed rate loans. This means that once you take out the loan, your rate is locked in and never changes unless you refinance or consolidate your debt with new terms.
Would Biden’s student loan forgiveness apply to these new loans?
It’s unclear. President Biden has spoken publicly about ideas for widespread student loan forgiveness — including canceling $10,000 of debt per borrower and limiting forgiveness to people earning less than $125,000 — but he doesn’t. has not submitted an official proposal. Nothing about student loan forgiveness is official yet, so we don’t know what the parameters for cancellation would be.
How to Lower Your Student Loan Interest Rates
The new student loan rates are set in stone, so there’s no way to lower your rates for the coming year. But there are ways to take out fewer student loans, which means you’ll pay less interest.
“Try to borrow the amount you only need for school, not the full amount you’re entitled to. By borrowing less, you won’t be paying as much long-term interest for your education,” says Reyes. “Maybe you qualify for $20,000 in student loans, but you do the math and you only need $15,000.”
It also says that you should contact your financial aid office if you have questions about your specific situation. You may find that you have other options for paying for your education, such as a scholarship or grant that does not need to be repaid. The school may also offer work-study opportunities.
Paying off your loans faster than necessary is another way to save money on interest. The amount of interest you pay is based on your principal, so making additional payments on your principal will reduce the overall amount of interest you pay.
Making payments on unsubsidized loans while you’re studying could be especially helpful in paying off your loans, Reyes says. With unsubsidized loans, interest accrues while you’re in school – so any money you can spend on it while you’re still enrolled will help you in the long run.
You might consider private student loans instead of federal loans. Some private lenders may offer lower rates, especially if you have a good
. However, Reyes says you need to be careful when considering private lenders.
“With federal student loans, there are a lot of protections, like forbearance, income-based payment plans, civil service loan forgiveness, and the possibility of the government canceling student loans,” says -he. Private student loans do not offer these benefits.
It is also important to remember that interest paid on federal student loans may be tax deductible. You can deduct either $2,500 or the total amount paid in interest during the year (whichever is less) if your adjusted adjusted gross income is less than $70,000, or $140,000 if you are married and file jointly. You might still be able to deduct the interest if you earn more, but higher income means a lower tax deduction.
If you can’t find ways to reduce the amount you pay in interest, now might not be the time to worry. Reyes says it’s important to remember that student loans can be considered “good debt.”
“Student loans aren’t bad debt because they can help you gain experience and potentially help you gain more in your lifetime,” says Reyes. “So it’s more of an investment in your future.”