Student loan interest rates, both for loans taken directly by students and for Parent PLUS loans taken by parents on their students’ behalf, are going up for the 2018–19 academic year. The rate hike is a result of the US Treasury’s auction of 10-year Treasury notes in May of this year; the rates on federal student loans and Parent PLUS loans are based on the yield of the 10-year Treasury at its spring auction. This is the second year in a row where the rates have risen. Undergraduate student loans will rise from 4.45% to 5.04%. Graduate loans will go from 6.00% to 6.59%. Parent PLUS loans will increase from 7.00% to 7.59%. These rates apply only to loans offered by the US government and only for loans taken out during the 2018–19 academic year.
If your child is using student loans to help pay for higher education, or if you are using Parent PLUS loans to help your child out, here are some important facts to keep in mind:
1. Federal loans are still your best option. While educational loans are also offered by private lenders, it is almost always in your interest to utilize the federal student loan program. As opposed to private student lenders, federal programs typically feature lower interest rates, offer more liberal repayment terms and do not require rigorous credit history or co-signers. They also typically feature hardship repayment options, in the event of unemployment or underemployment.
2. Parents should complete the Free Application for Federal Student Aid (FAFSA) every year while their child is in college. This online application is the gateway for your student to receive various types of federal financial aid, including some grants that do not require repayment. You’ll need to have your federal tax return completed in order to file your FAFSA.
3. If your child needs a little extra help and you don’t have the cash to cover it, a federal Parent PLUS loan may be your best option. Though higher than the rates on loans to students, they still typically offer lower rates than other lending options.
4. You should know the provisions for discharge of student loans. While no parent ever wants to contemplate the loss of a child, federal student loans and Parent PLUS loans contain provisions for discharge of the loan in the event of death. Student loans are discharged in the event of the student’s death, and Parent PLUS loans are discharged if either you or your child die. Many private educational loans do not contain such provisions.
5. Prioritize yourself. Without doubt, as parents we want to do all we possibly can to give our children opportunities. But if financing your child’s education will jeopardize your retirement or other financial matters, take care of your own needs first. You aren’t ultimately helping your child by placing yourself in an untenable financial position.
With total student loan debt at nearly $1.4 trillion and rising, even small increases in the interest rate indicate millions of additional dollars required by students and parents to service these loans. This means that it’s more important than ever for you to look carefully at your finances and your student’s opportunities in order to make the best decision for your and your child’s situation.
Stay Diversified, Stay Your Course!