Federal Student Loan Interest Rates Reach 16-Year High, Impacting College Students and Families
Inflation Easing Raises Hopes for Interest Rate Cut, But College Students Face Highest Loan Rates in Years
As signs of inflation easing spark hopes for a potential interest rate cut by the Federal Reserve Board this summer, thousands of college students and their families are facing the harsh reality of the highest federal student loan interest rates in years.
The interest rate for federal undergraduate student loans disbursed between July 1, 2024, and June 30, 2025, will be 6.53%, marking the highest rate in 16 years. Additionally, the rate for federal Parent PLUS loans, used by parents to cover college costs, will soar to 9.08%, reaching a 33-year high.
These rate increases come at a time when families are already struggling to afford the rising costs of higher education. Private student loans may offer more competitive rates, but they require a co-signer with excellent credit, making them inaccessible to many students. Furthermore, private loans lack key features of federal loans, such as deferment and income-based repayment options.
Financial aid expert Mark Kantrowitz advises students and parents to limit debt as much as possible. For undergraduate dependent students, the maximum borrowing limit for federal loans is $31,000, spread out over the course of their education. Parents should also be cautious about taking out PLUS loans, especially at the current high interest rates.
Kantrowitz recommends that parents limit total borrowing for their children’s college education to their annual income, with even lower borrowing amounts for those nearing retirement. By being mindful of borrowing limits and exploring other financial aid options, families can better navigate the challenges of financing higher education.
While hopes for an interest rate cut may provide some relief in the future, the current reality of high student loan rates serves as a reminder of the financial burdens facing college students and their families.