By James Prumos, Trending Writer
Anybody who has browsed the Internet and come across stories concerning college can see that one of the biggest issues students have is that the cost for attending college is far more expensive than it was several decades ago, and that they will have to start paying off a large amount of student loans a few months after they graduate. Business Insider projects that these debt levels will grow even further over the next fifteen years. The average annual cost for attending a private college in 2014 was $39,518, with that number being expected to increase by about 5 percent each year until it reaches $90,576 in 2030. This amount, which includes tuition, fees, and room and board, is insane, and it can make one wonder how students will pay for these funds without taking out a loan.
Loans already put pressure on the students to pay them off, as students have to start paying them a few months after they graduate. In the end, students will have to pay much more than the amount of the loan that they took out because of interest rates. Currently, the interest rate for loans disbursed, or given out, from July 2016 to June 2017, according to the United States Department of Education Office of Federal Student Aid, is 3.76 percent. This is down from 4.29 percent the year before, and InsideHigherEd reports that the 2016 rates are the lowest in history. Thankfully for students, lower interest rates, in comparison to loans operating under compound interest, will mean that the size of their loans will increase far more slowly, even if the cost of education increases go up by 5 percent.
Before 2013, student loan rates were created by Congress every year. Since then, according to Anthony Pizur, Ph.D., of American Intercontinental University, the rates have been based on the 10-year US Treasury note. This is a type of loan that the United States government “takes out” from other countries and promises to pay them back at a certain interest rate. The interest rates of these notes end up influencing the student loan rate for a particular year, with the student loan rates usually 2 percent higher than the rates of the Treasury Notes. The low interest rate for the 2016-2017 year shows that the interest rates for the Treasury Notes are currently low.
As per Investopedia, interest rates change based on how the creditor values the loan. If the creditor fears that the value of their investment will decline, they may ask for higher interest rates. So, provided that another recession does not happen in the near future, students should not have to worry about high interest rates on their loans.
A version of this article appeared in the Tuesday, December 10th print edition.
Contact James at