As we covered last summer, Congress passed into law student loan reforms that temporarily reduced student loan interest rates. However, as part of those reforms, the federal student loan interest rate, based on auction levels of Treasury 10-year notes, is allowed to float up to a capped percentage. This week, it appears that the first such increase is set to take effect on July 1, affecting all federal loans disbursed for the 2014-2015 academic year.

Last summer, the 2013-2014 fixed interest rates were as follows:

  • Undergraduates: 3.86 percent
  • Graduate students: 5.41 percent
  • PLUS loans (graduate students and parents of students): 6.41 percent.

For the 2014-2015 academic year, however, these rates will increase:

  • Undergraduates: 4.66 percent
  • Graduate students: 6.21 percent
  • PLUS loans (graduate students and parents of students): 7.21 percent.

While these rates are still below the maximum levels allowed by last year’s legislation (8.25%, 9.5% and 10.5%, respectively), these rate increases are likely to take a financial toll on both students, parents, and recent graduates. Given that the federal government’s CBO (which predicts the financial impact of legislation) predicted a $175 billion profit from the federal student loan program over the next decade, some families are wondering why student loan rates should rise at all.

Thankfully, there has been some recently introducted legislation to lower these rates and to hopefully provide relief to borrowers. College Parents of America will continue to follow such legislation and will discuss any significant developments and votes on our blog.