So Much for That Student Loan Interest Rate Cut

Last year, Congress rejiggered student loan interest rates from legislatively fixed rates to fixed rates based on the 10-year Treasury note (1.81% at the time). The result was a pretty big cut last year. For undergraduates, the unsubsidized Stafford loan rate fell from 6.8% to 3.86% but the subsidized loan rate rose to 3.86%. For grad students, the unsubsidized Stafford loan rate fell from 6.8% to 5.41%, and Grad PLUS loans fell to 6.41% from 7.9%. Everyone said rates would spike and trap students who’d been gulled by the lower rates. I figured the fears were unfounded because there wasn’t any reason to believe interest rates would rise.

Well, everyone was right.

Last week the Consumer Financial Protection Bureau publicized its estimate of the new rates based on the most recent Treasury note auction (2.62%). They’re about half a percent lower than two years ago.

Psych!

Back in mid-June, former Fed Chairman Ben Bernanke indicated that the Federal Reserve would begin “tapering” its bond purchases, which sent interest rates up. Eyeballing the interest rate on 10-year notes, it looks like the taper comment cost student debtors a half percentage point in student loan interest, accounting for the bulk of the difference in rates between this year and last year. I might not be right, but you can blame him if you want.