Student Loan Interest Rates Rise for Millions

Jon Hueber

Student Loan interest rates rose to 4.66 percent on new federal Stafford loans on July 1 as part of an initiative passed by congress and signed by President Obama. As reported by the New York Times, the new rate is.80 percent higher than loans processed last year of the 2013-14 school year. The new loans are tied the 10-year treasury notes and the rate is determined each spring.

The new interest rates go into effect each year on the first day of July. For students starting higher education this fall, they will pay 4.66 percent. But next year, those same loans could have a fixed rate even higher, climbing steadily to the cap--which is 10.5 percent on some types of loans--before their education is complete.

For graduate students, the interest rates on federal Stafford loans increased to 6.21 percent fixed, up well over a full point from rates last year.

What's worse, the value of higher education is dropping as interest rates rise, due to a soft job market. In a study by the Brookings Institution, the burden of monthly student loan payments has remained constant even as income levels dropped after the 2008 recession. This inequality in payment-to-debt is signaling what Brookings calls a "Student Loan Crisis."

Student loan debt--and the interest rates that are tied to that debt, whether fixed or variable--is having a major effect on an entire generation of Americans. Millennials are at the greatest risk, as student loan debt--and a big monthly payment--is keeping many from that generation from homeownership, which many still consider the watermark for equity-building success in a person's life.

Student loans debt affects more and more students as more and more people enroll in higher education programs. According to an article in a recent USAToday:

More than 70% of graduates will carry student debt into the real world, according to the Institute for College Access and Success. And the average debt is just shy of $30,000.

As the interest rates rise on Student Loans, and as more people flock to higher education to better their lives, the end result looks to be a nation of Americans owing more than they make, and the American Dream will seem more like a nightmare. And each year, on July 1, those interest rates will rise and the cycle begins again for millions more Americans. It kind of makes you wonder if that advanced degree is even worth it.

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