Student Loan Interest Rates on The Rise

Interest rates for student loans are reset each year. Starting July 1 interest rates for new borrowers of Direct Subsidized and Unsubsidized student loans will rise to 4.45%. That’s up from 3.75% the previous year.

Direct Subsidized Student Loans are those in which the government pays the interest while the student is in school. These loans are available to undergraduate students with financial need. Typically this means the Total Cost of Attendance at the school your student attends exceeds your Expected Family Contribution as determined by the FAFSA form. Even families with fairly high incomes and significant assets may have need at many private colleges and universities.

With Direct Unsubsidized Student Loans, the student pays the interest – or more often, the interest accrues before loan payments begin after graduation. Unsubsidized loans are available to all graduate and undergraduate students regardless of need.

Student loan calculator. Nearly 70% of students take on debt to finance their education. In 2015 the average student graduated with over $30,000 in student loan debt.  Minnesota ranks #6 in the nation with an average student loan debt load of $31,526.

To estimate the payments on your future loans, try this detailed calculator at the Federal Student Aid website. Here you can enter your loans, your estimated income after graduation and other details to determine your various loan repayment options.

What your student loan money is really used for. Here’s a radical idea: much of the money that students borrow for college doesn’t actually get used to pay for college. Shocking, I know.

That’s because when you borrow money for college, many those dollars go to fund nothing more than your student’s discretionary spending. Student Loan Hero surveyed students and found that 40% of them paid for non-education related expenses with student loans.

Think of it this way: If your student takes out a $1,000 student loan and spends $1,000 on a spring break vacation, didn’t they effectively borrow $1,000 to go on vacation? What about eating out at restaurants? Entertainment? Even illegal activities like underage drinking and drugs?

No one expects your student to live like a pauper for the next four years, but if they want to keep the student loan debt to a minimum, they need to be careful about how they spend their (aka your) money. Even small expenses add up over time.

For more information on student loan rates and other frequently asked questions, check out this information from the U.S. Department of Education.