Interest rates on federal student loans increase for 2018-2019

Mark KantrowitzBy:  Mark KantrowitzBy: Savingforcollege.com

Interest rates on federal student loans increase for 2018-2019

Mark KantrowitzBy:  Mark KantrowitzBy: Savingforcollege.com

Interest rates on federal student loans will increase by 0.595 percentage points for new loans made on or after July 1, 2018.

New federal student loan interest rates

The new fixed interest rates will be 5.045% on the Federal Stafford loan for undergraduate students, 6.595% for the Federal Stafford loan for graduate students and 7.595% for the Federal Grad PLUS and Federal Parent PLUS loans.

The loan fees are 1.066% for Federal Stafford loans and 4.264% for Federal PLUS loans from October 1, 2017 through September 30, 2018 and will be 1.062% for Federal Stafford Loans and 4.248% for Federal PLUS loans from October 1, 2018 through September 30, 2019.

What the increase in student loan interest rates means for borrowers

The increase in the interest rates will increase the monthly loan payments by about 2.8%, assuming a 10-year repayment term. For most borrowers that yields an increase of a few dollars a month.

The new interest rates do not affect existing loans, just new loans.

Formula for federal student loan interest rates

The interest rates on federal education loans are fixed, which means they remain the same over the life of the loan - but each year’s new loans have a new interest rate. The new interest rate is based on the high yield of the last 10-year Treasury Note auction in May. The 10-year Treasury Note auction on May 9, 2018 had a high yield of 2.995%, up from 2.40% the year before.

Congress specified the 10-year Treasury Note in the Higher Education Act of 1965 as the benchmark for federal student loan interest rates because it is the Treasury of closest comparable maturity.

The new interest rates may be calculated using the formula in this table.

Loan type10-year Treasury NoteIncrementCapFixed interest rate
Federal Stafford (Undergraduate)2.995%2.05%8.25%5.045%
Federal Stafford (Graduate)2.995%3.6%9.5%6.595%
Federal Parent PLUS2.995%4.6%10.5%

7.595%

Federal Grad PLUS2.995%4.6%10.5%7.595%



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