Personal Finance

Student Loan Interest Rates Are About to Go up — Here’s What That Could Mean for You

  • The US Department of the Treasury has raised interest rates on federal student loans.
  • These rates will apply to new loans taken out July 1 or later, but not to any existing loans.
  • A private lender may offer you a lower rate, but you’ll lose the benefits that come with federal loans.

The US Department of the Treasury recently announced that student loan interest rates will increase for the 2022-2023 school year. These new rates go into effect July 1, 2022, and you can’t take out any new student loans before that date.

Here’s what you should know about the new student loan rates, and how they could impact your wallet.

Why are student loan rates increasing?

Each May, the Treasury Department changes student loan rates depending on the most recent 10-year Treasury note auction. The Treasury note rate has increased this year, so student loan rates are going up, too.

Inflation has a huge impact on the Treasury note rate. This past March, inflation grew at its fastest pace in 41 years. So it follows that the Treasury note rate — and student loan rates — are increasing.

What are the new student loan interest rates?

Here are the new rates starting on July 1, versus rates for this past year.

These increases may not seem significant, but they will result in higher monthly payments. You could also pay hundreds more over the life of a loan.

Will this affect my federal student loans?

Yes, the Treasury Department’s new rates impact any federal student loans issued between July 1, 2022, and June 30, 2023.

Will this affect my private student loans?

No, not directly. The new interest rates only apply to federal student loans.

However, it’s possible that private lenders will increase their rates in response to this news, because their rates don’t have to be as low to compete with federal rates now.

“I would shop around, not just be committed toward one loan provider or private versus federal loans,” says Mark Reyes, a certified financial planner with the personal-finance app Albert. Comparing lenders can help you find the best rate — just know that private lenders don’t offer the same protections, such as student loan forgiveness through the government, that federal loans do.

How will this affect new loans vs. existing loans?

Any new federal loans you take out from July 1, 2022, to June 30, 2023, will have these new interest rates. But the higher rates won’t apply to any loans you’ve already taken out.

Federal student loans are fixed-rate loans. This means that once you take out the loan, your rate is locked in and never changes, unless you refinance or consolidate your debt with new terms.

Would Biden’s student loan forgiveness apply to these new loans?

It’s unclear. President Biden has talked publicly about ideas for widespread student loan forgiveness — including cancelling $10,000 in debt per borrower and limiting cancellation to people earning under $125,000 — but he has not submitted an official proposal. Nothing regarding student loan forgiveness is official yet, so we don’t know what the parameters for cancellation would be.

How to lower your student loan interest rates

The new student loan rates are set in stone, so there’s no way to lower your rates for this upcoming year. But there are ways to take out less in student loans, which in turn means you’ll pay less in interest.

“Try borrowing the amount that you only need for school, not the entire amount that you qualify to borrow. By borrowing less, you won’t pay as much interest in the long term for your education,” says Reyes. “Maybe you qualify for $20,000 worth of student loans, but you do the math, and you only need $15,000.” 

He also says you should contact your financial aid office with questions about your specific situation. You may find out you have other options for paying for school, such as a scholarship or grant that doesn’t need to be repaid. The school also might have work-study opportunities.

Paying down your loans more quickly than required is another way to save money on interest. The amount of interest you pay is based on your principal, so putting extra payments toward you principal will reduce the amount you pay in interest overall.

Making payments on any unsubsidized loans while in school could be especially useful in paying down your loans, Reyes says. With unsubsidized loans, interest accrues while you’re in school — so any money you can put toward these while still enrolled will help in the long run.

You could consider private student loans in place of federal ones. Some private lenders may offer lower rates, especially if you have a good


credit score

. However, Reyes says you should take caution when considering private lenders.

“With federal student loans, there comes a lot of protections, like forbearance, income-driven payment plans, Public Service Loan Forgiveness, and the potential to have student loans forgiven by the government,” he says. Private student loans don’t offer these benefits.

It’s also important to remember that interest paid on federal student loans may be tax-deductible. You can deduct either $2,500 or the total amount paid in interest during the year (whichever is less) if your modified adjusted gross income is under $70,000, or $140,000 if you’re married filing jointly. You might still be able to deduct interest if you earn more, but a higher income means a lower tax deduction.

If you’re unable to find ways to reduce how much you pay in interest, it still might not be time to worry. Reyes says it’s important to remember that student loans can be considered “good debt.”

“Student loans aren’t bad debt, as they can help you gain experience and potentially help you gain more in your lifetime,” Reyes says. “So it’s more of an investment in your future.”


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