Student Loan Borrowers Face $3 Billion Cost Increase

New loans could come with hefty price tag after recent rate increase

The Consumer Financial Protection Bureau (CFPB) is warning that new student loans could carry a heavy cost as a result of an interest rate increase that went into effect on July 1st of this year.

The CFPB noted the new rates impact both undergraduate and graduate student loan borrowers taking out new loans this year:

Interest rates for undergraduate loans have increased to 6.53% this year, nearly a 19% increase over last year and a 44% increase from just five years ago. For graduate and parent borrowers, costs were raised to their highest levels since 2006, with interest rates set over 9%.

The CFPB estimates that the new rates will add $3 billion to the total cost of loans taken out this year. To be clear, those costs are paid in interest to lenders.

For example, the CFPB says a new undergraduate student loan taken out this year will cost $466 more than a loan for the same amount taken out last year. The profits are paid to lending institutions and student loan servicers.

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