Student loan interest rates are now set for the upcoming 2017-2018 academic year. They’re going to be going up by about 0.7% across the board. The US Department of Education uses the last 10 year treasury note auction in May to determine student loan interest rates. That includes the Stafford Subsidized, Stafford Unsubsidized, and Grad Plus student loan interest rates.
The rate the government charges depends on a formula relative to the 10 year treasury bond rate at a specific time. In this case, that relevant date is May 10, 2017. The yield set in the auction came in at 2.40%. That’s a big increase from the 1.71% yield set back in May 2016.
Why Were Student Loan Interest Rates so Low For this Past Year?
Treasury rates were very low when they held the important auction last May. There was lots of uncertainty about the global economy, little worry about inflation, and Sec. Clinton was a sure thing for the presidency. Things can sure change quickly.
But Benchmark Interest Rates Are Going Up
Now with the Trump administration, investors are worried a lot more about inflation, eagerly expecting economic growth due to tax cuts, and anticipating additional business investment. These factors pushed up interest rates a lot.
However, rates get set at a single point in time for the entire upcoming year. We’ve had a drastically higher level of interest rates for a while now. At the same time, the government was handing out record low interest rates for grad school. Those times come to an end with the recent auction for the upcoming school year.
So What Will Students Be Paying for 2017-2018?
The government takes the auction results for the 10 year on that date in May and adds 3.6% for Stafford Unsub and 4.6% for Grad Plus. The 10 year auction came in at 2.40%. That means Stafford Unsub will be at 6% next year and Grad Plus will be at 7%. That’s a big increase over the 5.31% and 6.31% the government had been lending at for this past academic year.
I Doubt We’ll See Federal Student Loan Interest Rates This Low Again
I would expect the low rate offerings of 2016-2017 to be a one time thing. Get ready for higher interest rates across the board as the Fed is determined to raise interest rates going forward.
I think we will see variable rates continue to rise as the Fed increases short term lending costs. I also think that private refinancing will become a bit more attractive for fixed rates as government lending will now reflect a higher cost.