U.S. Department of Education Announces Highest Federal Student Loan Interest Rates in a Decade

The U.S. Department of Education has made an announcement on the interest rates for federal student loans for the upcoming 2024-2025 academic year. The interest rates are set to increase, posing potential difficulties for students and the Biden administration's efforts to address the student loan crisis.

Undergraduate Loans

For the 2024-2025 academic year, the interest rate on federal direct undergraduate loans will be 6.53%. This represents a significant increase from the previous year's rate of 5.5%. According to higher education expert Mark Kantrowitz, this marks the highest undergraduate interest rate in at least a decade.

Graduate Students and Parents

Graduate students will face an 8.08% interest rate on their federal loans for the upcoming academic year, up from the current rate of 7.05%. Meanwhile, the interest rate on PLUS loans for graduate students and parents will be 9.08%, a notable increase from the current 8.05%. Kantrowitz pointed out that these rates have not been as high in more than 20 years, indicating the significant impact of the rise.

Challenges for Borrowers

The increase in interest rates is expected to complicate the Biden administration's initiatives to address the student loan crisis and provide relief to borrowers. While recent debt relief measures have aided millions of borrowers, new students may face the burden of more expensive loans for a prolonged period.

Factors Influencing the Rates

The government determines the interest rates on education loans annually. These rates, effective from July 1 to June 30 of the following year, are partially based on the May auction of the 10-year Treasury note. The rise in the Treasury yield, reaching 4.483% in the May 8 auction, has contributed to the increase in federal education loan rates.

Commencing from July 1, 2024, all federal education loans will be subject to the new interest rates. Borrowers are advised that loans for the 2024-2025 academic year must be initiated after this date, with no option to secure loans ahead of the deadline to evade the rate increase. However, existing federal student loan rates continue to be fixed, providing relief to borrowers from the current rate changes. It should be noted that these rate adjustments are applicable solely to federal student loans, with private loans maintaining their distinct - often higher - interest rates.