The interest rate on many new federal student loans is set to rise to its highest level in more than a decade next year as lenders throughout the economy seek higher returns for borrowing money.
On Tuesday, the U.S. Department of Education said in a notice on its website that the rate for undergrads would rise to 6.53% from 5.5%. That’s equivalent to $113.72 for every $10,000 borrowed, according to Mark Kantrowitz, an expert on student loans, versus $108.52 for this past year.
For graduate students, the rate is rising from 7.05% to 8.08%, or to $121.77 per $10,000 from $116.36.
The rate levels are set by a pre-determined formula that takes the current yield on 10-year Treasury notes and adds percentage points based on the loan type and loan recipient.
The interest rate on the most recent auction of 10-year notes hit 4.483%. The 10-year is considered a benchmark rate and reflects investor appetite for risk given current circumstances in the economy