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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  • http://mymoneycounselor.com Kurt @ Money Counselor

    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.

  • http://www.krantcents.com krantcents

    Although I do not think it will remain 6.8%, it may motivate students to repay these higher interest loans faster.

  • http://dqydj.net PK

    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?

  • http://www.commoncentswealth.com Jake @ Common Cents Wealth

    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.

  • http://tightfistedmiser.com Andy Hough

    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.

  • http://www.hellosuckers.net Martin

    This is definitely worrisome since I have young kids. In just 8 years the older will start a college. We are screwed.

  • http://studentloansherpa.com Michael @ The Student Loan Sherpa

    It sucks that the rates doubled. I definitely makes taking out as little as possible and paying back as quickly as possible even more important.