Federal student loan interest rates increased July 1, 2013

New federal loans will now have an interest rate of 6.8 percent.

As of July 1, 2013, the federal student loan interest rates increased to 6.8 percent. This increase will not affect the borrowers that currently owe $1 trillion in student debt. For those currently paying back federal student loans the Consumer Financial Protection Bureau (CFPB) and US Department of Education are great sites to visit to assist in planning repayment. For all undergraduates planning to take out Direct Subsidized Loans, there will be changes.

Loans that will fall under the new interest rate structure will continue to have 0 percent interest rate while borrower is in school. Once the borrower graduates or does not return to school after six months they will be obligated to begin to repay back their loans. This increase will be approximately $300 a year in interest cost for a $15,000 student loan.

There are still some proposals floating out there from lawmakers that might change the future interest rates for federal student loans. One the proposals are to change the structure to use variable rates. If this structure should be adapted it will be challenging for the borrower to calculate a projected estimate monthly payment when due.

The CFPB will monitoring all proposals and will be asking for borrower’s feedback to share with legislators.

Even with the interest rates on federal student loans doubling, they are still a great option compared to private student loans. The in-school rates will continue to be 0 percent and you have many repayment options available to you. Also, if you return the school the interest rate will return to 0 percent. Currently, private student loans do not have these options.

Planning is still going to be the best option in know how much you need to borrow in student loans. Create a bare bones budget to assist in deciding just how much you will need to borrow. Michigan State University Extension has additional information on savings and financial planning at MI Money Health.

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