U.S. student loans just got more expensive

Millions of U.S. students just found out how much they’ll have to pay on student loans for the coming school session — and it’s a lot more than last year. 

Interest charges on student debt are set each year pegged to the Treasury’s May auction of 10-year notes. This year’s version took place Wednesday, and the debt was sold at a yield of 2.943% — reflecting the recent surge in borrowing costs as the Federal Reserve tightens monetary policy.

That means the benchmark for college loans is up by more than 125 basis points from the academic year that’s just finishing — and back to around where it was in 2018-19. 

Currently, borrowers don’t have to make any repayments, because a freeze imposed early in the pandemic remains in force. The Biden administration says it may forgive at least $10,000 in debt for some borrowers. 

What American students, or their parents, actually pay for college loans is of course much higher than the government’s borrowing costs. There are markups set by Congress that range from 2.05 percentage points for undergraduates to 4.6 points for PLUS loans — typically taken out by parents (who also have to pay an upfront loan fee equal to 4.2% of whatever they borrow).

So Wednesday’s Treasury auction means that a parent taking out a $30,000 loan for the upcoming college year will pay a flat fee of $1,260 and then installments of about $357 a month. 

Assuming it’s a 10-year loan, which is standard, the interest payments over its lifetime will add up to $12,813 — a jump of more than $2,300 compared with the 2021-22 school year. 

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