Policy- The Treasury set the new interest rates for federal student loans in the 2023-2024 school year on Wednesday.
- They're the highest rates for student loans in over a decade.
It's about to get a lot more expensive to take out a student loan in the upcoming school year.
On Wednesday, the Treasury Department's auction on ten-year notes — government securities to which federal student loan interest rates are tied — set in place the new rates on those loans for the 2023-2024 school year. As Politico reported, it's quite the surge, rising to the highest levels since at least 2013. Here's what the new rates will look like:
- Direct subsidized and unsubsidized loans for undergraduates: 5.5%, up from 4.99%
- Direct unsubsidized loans for graduates and professionals: 7.05%, up from 6.54%
- Direct PLUS loans for parents and graduate or professional students: 8.05%, up from 7.54%.
Interest rates on federal student loans are fixed, meaning borrowers will keep the interest rate at the time the loan is taken out for the duration the loan is in repayment. So, if an undergraduate borrower took out a direct loan in 2022, the 4.99% interest rate that was set last year will be the same interest rate that borrower repays for the lifetime of that loan.
When it comes to the PLUS loans, this increase is particularly notable given that interest rates on those loans have not been this high since 2006. Those loans allow a parent or graduate student to cover up to the full cost of attendance to finance their own — or their child's — education, and the borrowing is uncapped, meaning the borrower could take on much more debt than they could actually afford to pay off.
Insider has previously reported on the burden PLUS loans can bring, especially for parents. 3.6 million parents held about $103 billion in outstanding student loans for their kids' educations as of 2021, according to the latest federal data, and the surging interest has kept many of them stuck in a cycle of repayment long after their kids graduated. One 64-year-old dad previously told Insider that he owes $265,000 for his two kids, and he's delaying retirement because of it.
"This is an endless cycle where the loan can never be paid off unless I have a windfall and pay it all or I die and it goes away," he said. "I don't know if I'll be able to work into my 80s."
Additionally, while PLUS loans would be eligible for President Joe Biden's plan to cancel up to $20,000 in student debt — should the Supreme Court uphold it — they are left out of other forms of relief. For example, Biden's new income-driven repayment plan, which the Education Department said would be the "most affordable repayment plan ever," leaves out parent PLUS borrowers.
A senior administration official told reporters on in January following the release of the plan that the Higher Education Act of 1965 does not allow parent PLUS loans to be repaid on an IDR plan, and the department is not at this time proposing any changes to that law.
For now, student-loan payments are currently paused, with waived interest, and they are expected to resume 60 days after June 30 or 60 days after the Supreme Court issues a decision on Biden's debt relief, whichever happens first. It remains to be seen how smooth of a transition the return to repayment will be, especially when the new rates go into effect.