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Jul 01

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Student Loan Interest Rates Double!

On July 1, 2013, the interest rate charged to college student borrowers doubled to 6.8% from 3.4%.  This increase relates to those students who are planning to obtain a Stafford loan, which is federally subsidized.  CNNMoney indicates that this will affect 7 million college students, as such loans are awarded to approximately one-third of undergraduate students in financial need.  FoxNews.com estimates that this will cost the average college student an additional $2,600.

There may still be hope.  Congress is still working on reaching some sort of bill to assist with student interest rates, hopefully by the end of summer, before school starts.  One idea that has been proposed is to time student loan interest rates to the ten-year treasury.  However there is disagreement between both parties in Congress.

Student debt had been highlighted recently as American’s next big problem.  CNNMoney states,

Outsized student debt has become a pressing issue, with many young graduates deep in debt and without jobs. It is second only to mortgages as the largest debt that consumers carry. In 2011, students on average owed nearly $27,000 in loans.”

Raising the interest rates further adds to the problem.  The rule of 72 uses 72 divided by the annual interest rate to obtain the approximate number of years required for the student debt to double.  In this case, doubling the interest rate means that if no payments were made on the debt it would take 10.6 years for the debt to double instead of 21.2 years.  This difference clearly shows the ongoing burden of such a change on future financial security.

 

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

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