SAN ANTONIO – Student loan interest rates reached their highest levels since before the Great Recession this summer, which will cost borrowers thousands of dollars more, according to the Consumer Financial Protection Bureau.
The interest rate for undergraduate loans is now 6.53%, a 19% increase compared to last year and a 44% increase compared to five years ago, according to the CFPB. Graduate school and parent loan rates have exceeded 9%, their highest level since 2006.
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The increased rates could add more than $3 billion in additional interest to student loans issued this year, the CFPB said.
An undergraduate student leaving school in 2025 will have to pay an extra $466 compared to taking out the same loan one year ago.
The CFPB said these additional costs are only for one year of borrowing, and the actual cost is much higher.
While borrowers can sign up for income-driven repayment on their student loans, the interest still accrues under most offered plans. The CFPB said borrowers could also be unaware that these plans exist, have difficulty accessing them, or may even struggle while on those plans, as well.
Even if rates go down, federal loans operate on fixed interest rates, which means borrowers won’t borrowers won’t benefit from potential future rate decreases.
Students now have to face tough decisions on whether to borrow from the federal government, which has more loan protections, or lower-rate private loans, which lack safeguards.
“Even if interest rates decrease for future student loan originations, the rate on federal student loans remains the same throughout the repayment period. As a result, borrowers who take on federal student loans this year will always make higher payments than others who borrow in a lower interest rate environment,” the CFPB said in a blog post.
The bureau warns that private lenders overstate their benefits, and many borrowers have reported issues, such as denied benefits and misleading information about how to refinance the debt.
The CFPB said it would continue to examine the effect interest rates have on borrowers and ensure that student loan companies comply with federal consumer financial protection laws.