Will Your Children Be Paying Higher Interest on Student Loans?

On July 1, the interest rate on new federal subsidized Stafford Loans for undergraduate students doubled--from 3.4% to 6.8%. This increase brings the interest rate on subsidized Stafford Loans in line with the rate on unsubsidized Stafford Loans, which was already at 6.8%. The rate change is only for new subsidized Stafford Loans taken out after July 1.

What's the difference between subsidized and unsubsidized loans? With subsidized Stafford Loans, the federal government pays the interest while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized Stafford Loans, the student pays the interest during these periods. Eligibility for subsidized Stafford Loans is based on a student's financial need, as determined by the federal government's financial aid application, the FAFSA.

According to a June 2013 report entitled The Causes and Consequences of Increasing Student Debt by Congress' Joint Economic Committee, the rate increase on subsidized Stafford Loans will result in the average college borrower paying an additional $2,600 in interest over the life of the loan (a standard 10-year repayment term), and will cost an additional $4,500 in interest over the life of the loan for students who borrow the maximum aggregate subsidized Stafford Loan amount of $23,000 during their undergraduate years.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013

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