Student loan rates on the rise
“Student loans will soon be pricier,” said Annie Nova in The Department of Education has announced “higher than expected” interest rates for the coming 2018-19 academic year, marking the second consecutive year that rates on federal education loans have increased. Interest rates for new undergraduate loans will rise from 4.45 percent to 5.05 percent; rates for graduate student loans will climb from 6 percent to 6.6 percent, and PLUS loans—for parents and graduate students—will inch up from 7 percent to 7.6 percent. Rates are set annually and calculated based on yields of the 10-year Treasury note. Even though the new rates don’t kick in until July 1, if you or your child is entering college this year, the rate increase is unavoidable. The department doesn’t allow new loans for the 2018-19 academic year to be taken out until after July 1, even if you’re ready to apply before that date.
This year’s rate rises “mean families should weigh carefully how much they want to rely on borrowing to pay for college,” said Ann Carrns in The New York Times. In calculating how best to pay, parents “tend to overestimate how much they will contribute from their savings and underestimate how much their children will need to borrow.” As of late last year, Americans owed nearly $1.4 trillion on their student loans, an increase of $68 billion over 2016. One reason the figure continues to go up is that “the government imposes virtually no underwriting standards when it lends to college and graduate students,” said Josh Mitchell in The Wall Street Journal. Some 11 percent of all student loan debt is now in delinquency. There are several persistent problems, experts say. Many borrowers have “shaky credit” when they sign up for their loans, and some attend “schools of dubious quality” and subsequently struggle to land meaningful, wellpaying jobs. Delinquent borrowers often owe less than $10,000, but dropped out before receiving a degree and now decline to pay back their loans as a protest, “contending they were deceived by their schools.”
If you are struggling to repay your current loans, you do have options, said Casey Bond in HuffingtonPost.com. Not paying shouldn’t be one of them: That usually has a crippling effect on your credit scores. So consider instead enrolling in an extended payment plan, which can stretch out the time you have to repay your federal student loans by up to 25 years. When you get back on track financially, you can beef up your monthly payments. If you expect your income to grow significantly in the next few years, a graduated repayment gives you “breathing room.” Do your homework, so “you don’t have to be held hostage by student loans.”