Business

Interest rates rising modestly on student loans

WASHINGTON — Interest rates go up Tuesday for students taking out new federal loans. This hike is modest but could foreshadow more increases to come.

The change stems from a high-profile, bipartisan deal brokered last year by Congress and signed by President Obama that ties the rates to the financial markets.

Advertisement

Interest rates go from 3.86 to 4.66 percent on undergraduate Stafford loans. Graduate student loans go from 5.41 percent to 6.21 percent. Interest rates on Plus loans for parents go from 6.41 percent to 7.21 percent.

For every $10,000 borrowed, the average borrower will pay $4 more per month when she begins paying back the money.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

If the economy continues to improve, however, rate hikes could continue. Congress stipulated that rates for new loans be reset annually, but borrowers keep the rate they got for the life of the loan.

The compromise in Congress was reached after rates doubled last July.

Students take new loans each year, so by the time they graduate they could be repaying loans that have different interest rates.

Advertisement

Mark Kantrowitz, the publisher of edvisors.com, estimates today’s freshman could see rates the same or higher than they were when Congress acted by the time they graduate. When Congress acted, rates for undergraduates were at 6.8 percent. ‘‘The real concern is that the interest rates have nowhere to go but up,’’ Kantrowitz said.

The deal did include some caps. Interest rates will not top 8.25 percent for undergraduates. Graduate students will not pay rates higher than 9.5 percent, and parents’ rates top out at 10.5 percent.

Loading comments...
Real journalists. Real journalism. Subscribe to The Boston Globe today.