The Cost of Borrowing for College is Rising

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.  

 

 

Subsidized/  unsubsidized

Available to

2020-2021 interest rate

2021-2022 interest rate

Borrowing limits2

Direct Loans:

Undergraduate students


 

Subsidized and unsubsidized

Undergraduate students only


 

 

2.75%

 

3.73%

1st year:

Total: $5,500

Subsidized limit: $3,500

 

2nd year:

Total: $6,500

Subsidized limit: $4,500

 

3rd, 4th, 5th year:

Total: $7,500

Subsidized limit: $5,500

 

Max:

Total: $31,000

Subsidized limit: $23,000

Direct Loans:

Graduate and professional students


 

Unsubsidized only

Graduate or professional students only


 

 

4.30%

 

5.28%

Annual: $20,500

Total limit: $138,500

Direct PLUS Loans:

Parents and graduate / professional students


 

Unsubsidized only

  • Parents of dependent undergraduate students
  • Graduate or professional students

 

5.30%

 

6.28%

Total cost of education, minus any other aid received by student or parent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 [email protected]

 

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