The new rate increases the interest charge on a 10-year loan by $ 549 per $ 10,000 borrowed, or $ 4.58 per month, according to Kantrowitz, author of a book on asking for financial aid increased.

The rate is rising amid a nationwide debate over whether to write off some student debt to help distressed borrowers.

President Joe Biden has approved the forgiveness of up to $ 10,000 in federal debt per borrower, while other Democrats are pushing for much more relief. However, it is not known if a debt cancellation will take place, so students should not rely on it as they are thinking about how much to borrow, student debt experts advise.

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“Caution is always the best approach with student loans,” said Persis Yu, director of the Student Loan Assistance Project at the National Consumer Law Center.

She said students considering how much to borrow for next year and beyond should keep in mind why student debt has become such a hot topic: Many borrowers struggle to make their payments. More than one million students default on their federal student loans each year, according to the Pew Charitable Trusts.

Natalia Abrams, executive director of Student Debt Crisis, a group working to change lending policies for higher education, recommended that one student “always take out as few loans as possible.”

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But the reality is that many students can’t avoid borrowing money to go to college, said Michele Streeter, senior policy analyst at the Institute for College Access & Success, a nonprofit group that strives to make the university more affordable. The published average cost of attending a four-year public university as a student in the state is now just under $ 27,000 per year for tuition, accommodation and meals, and other expenses, while the average post-grant cost is estimated to be around $ 19,500. of the College Board.

And there are valid reasons to borrow: College graduates with a four-year degree tend to earn significantly more over their lifetimes than workers with a high school diploma. Students who need to borrow, Streeter said, should focus on federal loans and aim to borrow the maximum amount allowed for federal loans before considering private loans from banks or other non-government lenders. Private loans are generally more expensive and lack the consumer protections that come with federal loans, such as borrower’s income-linked repayment plans and deferral options when borrowers experience financial difficulty.

Nearly two-thirds of college seniors who graduated in 2019 had student loan debt, with an average of around $ 29,000, according to Project on Student Debt, an initiative of the Institute for Access to College. . This was down slightly from the 2018 average, continuing a trend of “relatively stable” student debt levels in recent years, according to the project.

But the pandemic has turned many aspects of higher education upside down, and it remains uncertain whether increases in student debt will resume as the country begins to return to normal operations, the Student Debt Project reported last year.

The US Department of Education hasn’t officially announced the new student loan rates, but Kantrowitz calculated them using the government’s formula, which adds an additional fixed rate depending on the type of loan.

The rate of direct loans to graduate students will drop from 4.3% to 5.28%. The rate for PLUS loans, which are additional loans available to parents and graduate students, will drop from 5.3% to 6.28%.

The new rates do not apply to private student loans.

Here are some questions and answers about student loans:

Can I take out loans for next year now to get lower rates?

No. New federal student loan rates are set for each academic year, effective July 1, using a formula established by Congress. Loans are offered by colleges, based on information that you declare on the Free Application for Federal Student Aid, or FAFSA.

The increase does not affect the rates of student loans already borrowed. Once loan rates are set, they are set for the life of the loan.

How much can I borrow?

There are limits to the amount of money students can borrow in the form of federal loans, annually and in total. In general, dependent freshmen can borrow up to $ 5,500 and second year students up to $ 6,500. For the third and fourth years, the limit is $ 7,500. The total cap is $ 31,000 – higher than the combined annual limits, in case a student takes more than four years to graduate. The limits are higher for independent and graduate students.

When does the current pause on student loan payments end?

In March 2020, as part of the government’s pandemic relief program, Congress allowed most federal student loan borrowers to temporarily stop making monthly payments and set the interest rate on loans to zero during suspension. The suspension has been extended several times, most recently at the start of this year, when the Biden administration extended it until at least September 30. Some borrower advocates are backing another extension, but it’s not certain that will happen.

Normally, the so-called unsubsidized loans bear interest while the borrower is in college, but as part of the back-up plan, the interest on these loans is also temporarily zero, “even while you are in school.” , according to the Department of Education website.

The temporary zero interest rate is unlikely to have a significant effect on loans taken out after June 30, Streeter said. The interest-free “short window”, before repayments resume on October 1, would mean the impact would likely be negligible, she said.

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