The Student Loan Interest Rate Doubled: Now What?

student loan interest ratesSo, it happened.

July 1st was the deadline. And now, regardless of fault, the student loan interest rate doubled. It used to be 3.4% (but who had that?) and now it’s 6.8%.

What do we do now?

Do we even know what that means?

I’d argue that we don’t really know what that will mean. What kind of impact that will have.

It worries me, though. We talked a few weeks ago about how the average student loan debt is $24,000.

So, let’s look at that in your favorite online calculator. The one I looked at was from FinAid.com, and for the sake of argument, I used the average.

At 3.4%, over the lifetime of the loan (again, using the standard ten year term), a graduate would pay just over $4,300 in interest alone.

That sounds like a lot. In fact, I’m not sure my car is worth much more than that.

But that was last week. Now?

The graduate would pay almost $9,200 in interest alone.

That is certainly worth more than my car.

Interestingly, the monthly payment isn’t all that different.

In fact, it’s $236 in the “olden days” — and $276 today.

The sad thing is, most people won’t even notice that.

We need to be more conscious in our finances, friends! Because… well, that’s a lot of money in ten years.

Are you worried about this?

Should we be?

What if you have way more than the average?

Kids of all ages: goodness gracious, please … if you get nothing else from this …

Pay more than the minimums!

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Comments

  1. says

    That’s a big hit in interest expense! You’re right–the change in rate really elevates the value of paying early on student loans. Any payment on one of the affected student loans now ‘earns’ a 6.8% guaranteed, risk-free return instead of the former 3.4% return. That really changes the calculus of what to do with ‘extra’ money in my mind–risky stocks or a guaranteed, risk-free 6.8% investment return? For me, the choice would be easy.

  2. says

    Of course, this all assumes that students will look at the rate before borrowing – which, unfortunately, might not be true (haha). Oh well, guess personal finance blogs will continue to be relevant?

  3. says

    I know when I signed up for my loans (’07 through ’09) the rate was 6.8% and everyone was telling me to do the fixed rate because that was pretty low. Needless to say, my few variable rate loans kept dropping while I was stuck paying 6.8% on the majority of my loans. I hope that the higher interest rate will make less people take out student loans, but that’s probably just wishful thinking.

  4. says

    My loans were all at the 6.8% rate anyway which was the only rate available to me when I got my loans. Maybe the higher rate will make students more conservative in the amount of loans they take out, but I doubt it.

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