How will the rate increase on student loans impact you?

For the past several years, government bonds have paid out fairly low-interest rates. Depending on which side of the fence you’re standing on, either borrowing or investing indicates whether you felt this was a good or bad thing.

From the investing standpoint, it was not a great thing. Many experienced low rates of return on savings accounts, checking accounts, money markets, and even CDs. If one were living on a fixed income and depended on these investments as part of their cost of living, they definitely felt the impact.

From the borrowing side of things, those that needed to take out a loan were able to get a lower interest rate. So those buying a new car, receiving a mortgage loan, and of course, taking out a student loan benefited from the lower rates. That is now changing…at least a little bit.

The difference isn’t a lot, only about half of a percent. Even with this little bump (more of a hiccup) rates are still much lower than they were just a few short years ago. Credible.com has a great historical chart for federal student loan rates between the years 2006-2018. Only a blink ago, in 2008, rates were sitting at 6%...almost a percent higher than has caused all of the recent hype.

ONE HALF OF A PERCENT

Now, will the rate increase have a drastic effect on those beginning or finishing their scholastic careers? It probably won’t make or break one’s decision to start or finish a degree plan, but it may take paying back those borrowed funds a little longer. This is where close consideration as to whether the funds are truly necessary will play your best defense against high repayment amounts down the road.

First, let’s look at some other options to pay for those credit hours rather than a loan. Have you exhausted all possible scholarships options? How about available grants? These can drastically reduce the remaining amount you’ll need to come up with, and there are plenty out there. Some are actually pretty quirky… Check out some of these:

Tall Clubs International Scholarships offers up to $1,000 just for being, well, tall. Men must be at least 6’2’, and women must measure in at 5’10” and up.

Superpower Scholarship offers up to $2,500 for telling them which superhero or villain you’d like to be and why.

American Fire Sprinkler Association Scholarship will provide up to $2,000 with no essay required. That’s right…no need to write a paper. Simply take a 5-minute tutorial on fire sprinklers.

Flavor of the Month Scholarship is giving away $1,500 for letting them know which ice cream flavor you would like to be and why.

Want to see more? Check out these others, along with basic requirements and due dates here.

If you’re still in need of financial assistance, a student loan may be your only other option, but be cautious when deciding what you “need” versus what you qualify for. There is a difference.

While it may be tempting to take the extra cash you “qualify for” to upgrade your laptop, or stash some back for that spring break trip, just remember these funds don’t come for free. You are borrowing these amounts, not “getting” them. Distinguish the need versus what you qualify for.

The repayment phase hits many pretty hard. A new graduate may experience a little shell-shock when that six-figure job offer isn’t beating down the door. The reality may be a little overwhelming. But do not fret… you can always consolidate the student loans, right?

Maybe. Maybe you should, and maybe you shouldn’t, at least not before understanding the options. Consolidating through a private lender may offer you a lower interest rate, but that lower rate may hinder you from taking advantage of some programs down the road. Consolidating through the government won’t lower your interest rates (they will typically average out), but if you are a teacher, disabled, or a public servant, you may qualify for some loan forgiveness services.

As with any complicated long-term financial issue, consult with a professional. They’re your superhero for a sound financial future.

Michelle Kuehner is a Registered Investment Advisor Representative and President for Personal Money Planning. She is also a Certified Credit Counselor and Certified Financial Health Counselor, writes Fix Our Budget blog, and has over 25 years of experience in the financial industry.