Federal Student Loans Up Nearly 1% in July: How to Make the Most of Your Options

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Interest rates on federal student loans are rising for the upcoming school year. Here are your options. (iStock)

Federal student loan interest rates rose more than two percentage points in early July, from 3.71% last school year to 3.73%. Federal lending rates are fixed, and each year the loans have a new fixed interest rate, which resets on July 1. Parents and students have several options available to them when determining payment for the upcoming school year.

The new rate is based on the return of the 10-Year Treasury Auction in May, a formula established by the US Department of Education. The following are the latest federal student loans from 1 July 2021:

  • Direct subsidized and direct unsubsidized loans for undergraduates: 3.73%
  • Direct unsubsidized loans for graduates or professionals: 5.28%
  • Direct PLUS loans for parents and graduates or professionals: 6.28%

This represents an increase of 2.05 percentage points from the 2021 to 2022 school year, according to the Department of Education. An additional 3.6 points were added for graduate student loans and 4.6 points for PLUS loans.

Several options are available to student loan borrowers as interest rates rise, including grants and grants, federal student loans, and private student loans. To compare private student loan options and see which option works best for you, visit Credible to find your personal private student loan interest rate.

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1. Pay for school by taking out a private student loan

While student loan interest rates are rising, they are still historically low. In the 2018-2019 school year, undergraduate federal student loan rates reached 5.05%. And while private student loan rates tend to be higher than federal rates, they’re also near all-time lows.

β€œIf you’re considering private student loans, you need to know your options to ensure you get the best outcome for your unique situation,” says Credible Chief Revenue Officer Robert Humann.

If you are considering taking out a private student loan, be sure to compare several options. Visit Credible to find your interest rate for a student loan from multiple lenders at the same time.

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2. Look to Financial Aid Scholarships and Scholarships

Before applying for a student loan, borrowers should check their eligibility for grants and other student aid β€” such as grants β€” through the Free Application for Federal Student Aid (FAFSA).

“This is the season when students and parents are making tough decisions about how to pay for college as the fall semester approaches,” Humann said. β€œTake advantage of scholarships, grants, financial aid, and consider work and study opportunities before looking at federal and private loans.”

If you’re looking for ways to make up for the difference in tuition fees, and you’re not eligible for scholarships, consider a private student loan. Go to Credible to get prequalified without affecting your credit score.

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3. Take out a federal student loan

The average cost of tuition in the state for national universities have: increased by 72% from 2008 to 2021. For the 2020-2021 school year, tuition rose to $41,411 at private colleges, $11,171 for state residents at public colleges and $26,809 for out-of-state students, according to data from the US News annual survey.

Federal student loans are also generally a better option than private student loans. Despite rising interest rates, they generally have lower interest rates than private loans. And unlike private student loans, they are eligible for the current break on federal student loan payments during the COVID-19 emergency until September and can be included in all student loan forgiveness programs.

But federal loan programs are up to $5,500 for dependent first-year undergraduate students. If you don’t qualify for federal student loans or need to borrow more than the federal limits, consider taking out a private student loan. Visit Credible to compare multiple options and speak to a student loan expert to get all your questions answered.

Do you have a financial question, but don’t know who to ask it? Email The Credible Money Expert at: moneyexpert@credible.com and your question can be answered by Credible in our Money Expert column.

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