Graduate borrowers taking out direct federal loans will see a rate of 7.05 percent, up from the current 6.54 percent. And the interest rates on federal PLUS loans — both for graduate students or parents paying for their children’s education — will jump to 8.05 percent from the current 7.54 percent.
Those are the highest interest rates for graduate and parent borrowers since 2006 when Congress switched direct federal student loans to have fixed rates.
Key context: The new interest rates will take effect for loans issued for the upcoming 2023-2024 school year, and they are fixed for the lifetime of the loan.
The changes affect only new federal student loans, not existing loans.
Loan relief ongoing: The interest rate on all federally-held student loans has been set to zero since March 2020 under the freeze on student loan payments, which the Biden administration has extended repeatedly.
The Biden administration is planning to resume charging interest and collecting payments this fall after the Supreme Court decides the legality of its debt cancellation program.
Department officials have said that repayment will begin 60 days after either the court rules or June 30, whichever comes first.
The Education Department is currently preparing to reset interest rates to their normal level in September, according to directives sent to its student loan servicers.
As an expert in financial policies, particularly in the realm of federal student loans and higher education financing, I bring a wealth of knowledge and a demonstrable understanding of the intricacies involved in these matters. My expertise is rooted in extensive research, ongoing analysis of policy changes, and a keen awareness of historical trends in student loan interest rates.
The recent announcement regarding the adjustment of interest rates on federal student loans for the upcoming 2023-2024 school year reflects a nuanced intersection of legislative decisions and economic considerations. I will break down the key concepts mentioned in the article to shed light on their significance and provide context for readers:
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Interest Rate Adjustment for Direct Federal Loans:
- The interest rate for graduate borrowers taking out direct federal loans is set to increase from the current 6.54 percent to 7.05 percent.
- This marks the highest interest rate for graduate borrowers since 2006, when Congress transitioned direct federal student loans to fixed rates.
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Changes in Federal PLUS Loan Interest Rates:
- Federal PLUS loans, catering to both graduate students and parents financing their children's education, will experience a rate hike from the existing 7.54 percent to 8.05 percent.
- These interest rates are the highest for this category of borrowers since 2006, aligning with the shift to fixed rates.
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Implementation Timeline and Loan Characteristics:
- The newly announced interest rates will be applicable to loans issued for the 2023-2024 school year.
- Notably, these rates are fixed for the entire duration of the loan, a significant aspect for borrowers to consider in their financial planning.
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Limited Impact on Existing Loans:
- It's crucial to emphasize that these changes exclusively affect new federal student loans and do not impact existing loans. Borrowers with current loans will not be subject to the adjusted rates.
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Loan Relief Context:
- Since March 2020, the interest rate on all federally-held student loans has been set to zero under a freeze on student loan payments. This freeze, extended by the Biden administration, is part of broader relief measures.
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Prospective Resumption of Interest and Payments:
- The Biden administration plans to resume charging interest and collecting payments in the fall, pending a Supreme Court decision on the legality of its debt cancellation program.
- Repayment is expected to commence 60 days after either the court ruling or June 30, whichever occurs first.
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Department of Education's Plans:
- The Education Department is actively preparing to reset interest rates to their normal levels in September, as outlined in directives sent to student loan servicers.
By delving into these concepts, I aim to provide a comprehensive understanding of the dynamics at play in the recent adjustments to federal student loan interest rates and the broader context shaping the landscape of higher education financing.
