The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Back to School Bonus

Families with students heading off to college this fall take note: The interest rates on all newly-issued federal loans have been reduced for the coming academic year -- but those reductions are much more pronounced for student borrowers than for their parents.1

 

For instance, the interest rate on Stafford subsidized and unsubsidized loans for undergraduates will decline to 3.76% from 4.29% last year.1 For graduate students, the Stafford loan rate will fall from 5.84% to 5.31% for the coming academic year.1 In contrast, the rate on Federal PLUS loans for parents is a full percentage point higher at 6.31%.1

 

That rate is down from 6.84% for PLUS loans issued for the 2015-2016 academic year, but it still will nearly double the cumulative interest paid on a $50,000 loan over 20 years when compared with an undergraduate Stafford loan.1 (Note that rates are set each year for new loans, but those rates remain fixed for the life of the loan.)

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Student Loan Debt: A Lingering Burden for Aging Americans

When the growing problem of student loan debt is discussed in media reports, most of us assume the borrowers in question are young people in their 20s and 30s. But new government research has revealed that the number of Americans aged 60 and older who are still saddled with unpaid student loans has risen precipitously in recent years.

 

According to the Federal Reserve Bank of New York, approximately two million older Americans currently have outstanding student loan debt, up from 700,000 in 2005.1 That number includes both longstanding loans, which were used to finance their own educations, as well as recent loans taken out to fund a family member's college degree. In dollar figures, older individuals collectively are on the hook for $43 billion in debt -- up from $8 billion in 2005. 1

 

For those in this population who are already retired and living on a fixed income, the burden of paying off old loans -- some of which carry interest rates as high as 8% or 9% -- can potentially put them at financial risk. Per legislation passed by Congress, federally funded student loans taken out on or after July 1, 2013, carry a fixed, reduced interest rate of 3.86% (5.42% for graduate student loans). 2 A proposal currently being considered by Congress would allow individuals holding pre-July 2013 loans to refinance their debt at today's lower rates, which proponents of the bill estimate would provide relief for some 25 million Americans. 1

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