Student loan interest rates rise: How affordable is college now?

Student loan interest rates will be at a decade-high as the Department of Education released its rates for 2024 to 2025, raising it 6.53%. To talk about the financial impact this will have on students seeking to attend college, Scholly By Sallie Founder Christopher Gray and Student Loan Expert Mark Kantrowitz join Wealth!

Kantrowitz says overall it's "not a huge increase," while Gray touches upon the importance of scholarships and free money qualifications for prospective college students. Technical difficulties in revised FAFSA (Free Application for Federal Student Aid) forms have left many wondering if they can even afford college at this time.

Both Gray and Kantrowitz — the latter being the authors of How to Appeal for More College Financial Aid — discuss the challenges many loan borrowers face while struggling to keep up with loan rates and acquire the necessary skills in school to find equitable employment.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Luke Carberry Mogan.

Video Transcript

Going to college is about to get a little bit more expensive.

The Department of Education is out with their newest federal student loan interest rates for 2024 and 2025 and they're higher than they've been in over a decade with federal undergraduates interest rates coming in at 6.53%.

That's up from 5.5% for more.

Let's bring in our panel here.

We've got Christopher Gray who is the scholar by Sally founder and Mark Kantrowitz, who is the student loan expert and author of how to appeal for more college financial aid.

Mark.

Let's, let's start with you.

I mean, you hear a jump like this, what is this doing in terms of the affordability arguments for a lot of prospective students out there?

And how could it alter their decision of where they go even?

Well, the 1% increase in the interest rates is roughly about 5 $5.5 per $10,000 borrowed in monthly payments over a 10 year repayment term.

So it's an increase in college costs but not a huge increase.

Ok. And so Chris, for people who are trying to offset even the increase that mark put into perspective here a little bit for us, where might this kind of be offset in the process of just looking for scholarships or looking for aid and applying for it?

Well, I mean, well, I think that people should start looking for free money for college, like scholarships um, before they even start taking out, uh, either federal or private student loans.

Um, and there's even the fa and I know that, you know, there have been some issues with that this year but still just be patient, like, figure out how much free money you, um, you qualify each, how much free money you qualify for before taking that, um, that debt burden, you know, and that's obviously what scholar is about.

But, you know, I think that people should really look at free money first because, I mean, the interest rates, I mean, it's, it's increasing and I think it's gonna hit a lot of underserved communities even harder than most.

So I think just making sure that, you know, what you actually need to borrow is really important.

I mean, uh, mark, there was, there was an absolute FAFSA debacle even before some of the deadlines this year as we're thinking about the number of students who are looking out to next year and trying to get ahead of their college selection process.

You know, how is what's taking place this year going to change the mindset for prospective students.

Well, the interest rates on federal student loans are set on an annual basis.

It's a fixed rate for the life of the loan.

But each year there is a new rate and if the federal reserve starts cutting interest rates in the fall, then we could see the direction in which interest rates are headed, reversing next year.

And it's based on the last 10 year Treasury note auction in.

So there is a possibility that we might uh this might be just a one year thing, Chris, I saw you nodding your head even as I was mentioning that question and, and what we saw take place with FAFSA.

Do you, do you think that we have reason to believe that there's gonna be a material difference next year when the same deadline comes around?

I think that I think that this is new and I think any time the Department of Education or any government tries to do something new, it's, it's just, it's, it's harder and it's, and it's a lot of change.

I mean, you're trying to do something for, I mean, you know, all, all American over 44 million bars and things like that.

So I think that I think that hopefully by the end of this year, I do think that um I do think the kinks of this new f so will be streamlined and again, like the interest rates side, I think that that process being you know, getting that together is going to be really important.

But I do think that hopefully this will be a one year thing because it's caused so much chaos that I don't think that and you look at in addition to these interest rates rising, I just don't think that the government gonna want to smoke.

So I think they're really going to make it an effort to learn from this streamline it and I think ultimately, once it's done, it'll be, I mean, the fast food is going much easier than ever mark when we, when we talk about the college experience that it's, it's a return on investment calculation that a lot of families and individual students calculates to understand what the return on their degree is going to look like.

And we've talked about so much upskilling or reskilling in the existing workforce.

How is that showing up among some of the college majors that are being decided on from what you've seen?

Well, you should aim to have your total student loan debt or graduation less than your annual starting salary.

If total debt is less than annual income, you can afford to repay the student loans in 10 years or less.

We don't really have a student loan problem right now.

So much as a college completion problem.

Students who graduate generally are able to repay their student loan debt.

But if they drop out of college, they are four times more likely to fall on their student loans, uh and they'll struggle to repay their student loans.

So I'll have to use extended repayment or income driven repayment for those monthly payments.

So if they choose AAA major and maybe focus on one that can help you pay the bills after you graduate.

Uh, Chris, uh a similar question to you with, with the addition of, of course, generative A I and, and I say it partially because that's the reality of what a lot of students are perhaps considering, could be an applicable type of realm to get into whether it's computer science or something else.

And I, I say it partially for the se you know, once the transcript post says, well here smartly, but at the same time, how many of these new majors are kind of inclusive of some type of generative A I understanding and, and being able to skill students for the jobs that haven't even been created yet.

Yeah, I think that what I mean, the beauty about A I is that it's all built on data sets, right?

And I think universities do have that tons of course content.

And I think that is gonna make, being able to train students on these different skills a lot easier.

Um And I think that, you know, and it's, and hopefully making these courses more affordable, I think making online education more affordable um online degrees more affordable at a, at a cheaper cost.

So we're thinking that that's kind of what, where we're going to see things.

But I think that, yeah, generative A I is gonna play a huge role in, in upskilling reskilling and actually being able to constantly adapt to skills.

Whereas universities and boot camps and such have to constantly get the go to humans to kind of change and update these, that curriculum.

I think A I will be able to do that faster and hopefully make, um you know, make these uh make these training more affordable and more accessible at scale to um to a number of people.

Gentlemen, thank you so much for taking the time here today.

Chris.

Great to see you, Chris Gray Scholar by Sally founder and student loan expert, Mark Kantrowitz.

Mark.

Pleasure to see you as well.

I've been following your, your work across Twitter or X whatever we're calling it these days.

So good to have you on.

Thank you.

Thanks.

Thank you.