For many college students and their parents, the cost of borrowing for college is rising. After two years of decreases, interest rates on subsidized and unsubsidized federal student loans are set to increase almost a full percentage point for the 2021-2022 school year.1 The interest rates on federal student loans are reset each year after the May auction of the 10-year Treasury note.
Subsidized vs. unsubsidized: What's the difference?
With subsidized loans, the federal government pays the interest that accrues while the borrower is in school, during the six-month grace period after graduation, and during any loan deferment periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need as determined by the Free Application for Federal Student Aid (FAFSA).
With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Unsubsidized loans are available to anyone and are not based on financial need.
The new interest rates
The rates only apply to new federal student loans issued on or after July 1, 2021, through June 30, 2022. Fortunately, interest rates are fixed for the entire term of the loan, so if interest rates go up for the 2022-2023 school year, this will not affect the interest rates of loans you or your child took out either this year or in previous years.
A financial advisor can provide more information and help you evaluate these and other options for funding your children’s college costs.
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Dan Flanagan is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or dflanagan@canbyfinancial.com
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances.
1The New York Times, May 28, 2021
2U.S. Department of Education, 2021