What to Do When Federal Student Loan Rates Are on the Rise

Interest rates on federal Direct Loans for students and parents are set to rise, causing concern for those already struggling to pay for college. The fixed rate for Direct Loans changes annually on July 1st, and for loans made between July 1, 2024, and June 30, 2025, the undergraduate Direct Loan rate is 6.53%, while the PLUS Loan rate is 9.08%.

The increase in interest rates is due to the 10-Year Treasury Note auctioned in May, which resulted in higher rates for students and parents. This year’s auction saw a 1.03% increase compared to the previous year, leading to the higher interest rates.

To minimize student borrowing, families are advised to borrow as little as possible, pay interest while the student is in school, find scholarships, and use tuition payment plans. Additionally, comparing private loans to PLUS loans can help families find a more cost-effective option.

Private lenders offer fixed and variable rate loans, but caution is advised when considering variable rate loans, as they can become a burden if interest rates rise. Understanding the terms and conditions of the loans is crucial before signing any agreements.

Overall, student loans should be seen as a last resort, not the first option, to pay for college. Families are encouraged to explore all other financial aid options before turning to loans to fund their education.