Even before fall tuition bills start arriving, college students taking out new federal student loans will be hit with an interest rate hike beginning tomorrow.
The fixed interest rate on federal student loans will increase to 4.45% for undergraduate Stafford loans, 6% for Stafford loans for graduate school and 7% for the federal Parent PLUS loan.
The rate hike is 0.69 percentage points.
The rates will apply to new loans made beginning July 1 through June 30, 2018. Rates on existing federal student loans with fixed rates will not change.
On average, undergraduates took out $4,060 in unsubsidized federal Stafford loans in 2015-16, according to Mark Kantrowitz, publisher and vice president of strategy for Cappex.com. The average annual amount was $3,727 for undergraduate subsidized federal Stafford loans.
The July 1 rate hike does not apply to private student loans.
Typically, federal student loans are the best first-bet. But college loan experts note that parents who have very good or excellent credit might want to review private parent loans that are less expensive than the federal parent PLUS loan but often more expensive than the federal Stafford loan for students.
"For undergraduate students, the interest rates on federal Stafford loans are among the lowest," said Kantrowitz, of Cappex.com.
He noted that private student loans and private parent loans may be competitive with the Federal Parent PLUS and Federal Grad PLUS loans, if the borrower or cosigner has excellent credit.
Lenders in the private student loan market continue to roll out different programs and pitches.
Sallie Mae, for example, launched a new product in late June with competitive rates for students pursuing graduate degrees in business, dental and medical, and other health professions.
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