Grad student federal loan interest spike
Graduate students could face a spike in their federal loan interest rates as the economy improves, based on Congress’s new system for determining interest rates.
On July 31, Congress passed legislation that switched federal loan interest rates from fixed rates to a market-based system. Congress will recalculate interest rates annually for the borrowing year, from July 1 to June 30, based on market rates.
“The new rates are still fixed for the life of each borrowed loan, but under the new interest rate formulas, the fixed rates . . . will apply to all new loans borrowed during that July to June aid year,” Financial Aid Director David Horne said in an email.
While the new law immediately reduced the interest rate on federal loans from 6.8 percent, graduate student interest rates and rate maximums remain higher than undergraduate rates.
“Congress struggled with competing goals of making college affordable versus restraining federal aid expenditures,” Horne said. “In an effort to control federal aid expenditures, Congress set a higher interest rate for graduate students.”
According to the Federal Student Aid website, the 2013-2014 interest rates are 3.86 percent for unsubsidized loans newly disbursed to undergraduate students and 5.41 percent for graduate students.
The undergraduate loan interest rate maximum is 8.25 percent, but for graduate students, the maximum is 9.5 percent.
As the economy improves and market rates rise, graduate students are likely to receive higher interest rates than undergraduate students.
Julia Tennyson is a graduate student in Towson’s Speech-Language and Pathology program. She borrowed two federal loans to help pay her first year, but the interest rates add to her stress of graduate school.
“Fortunately, my parents paid for my undergraduate education, but I’m responsible for paying for graduate school,” Tennyson said.
According to the 2011-2012 National Postsecondary Student Aid Study, to which Towson University contributed data, 43 percent of graduate students received direct subsidized or unsubsidized loans. The average amount of money graduate students received through these loans totaled $17,000.
The Federal Student Aid website states that starting July 2012, however, graduate students became ineligible to receive subsidized loans. This change reduced the amount of federal aid they could gain.
“Speech-Language and Pathology is a full-time program that includes clinical work. The higher interest rates make me nervous,” Tennyson said.