What you need to know about rising student loan rates

Interest rates in general are rising, and so are the rates on student loans for the coming school year.

Interest rates on federal student loans for undergraduates will increase to 5.05 percent from 4.45 percent for the 2018-2019 academic year, the federal Department of Education said.

Rates on loans for graduate students will go up to 6.6 percent from 6 percent; and rates on PLUS loans, for parents and graduate students, to 7.6 percent from 7 percent.

The federal government sets rates for new student loans each year, under a formula adopted by Congress several years ago. The new rates take effect annually on July 1, and apply to loans taken out for the following academic year.

Mark Kantrowitz, an author and expert on student financial aid, said the new rates would increase monthly payments by about 2.8 percent, or "a few dollars a month" for most borrowers, assuming a standard 10-year repayment term.

Still, with student debt an increasing concern, higher rates mean families should weigh carefully how much they want to rely on borrowing to pay for college. A stronger economy makes it more likely that graduates will be able to find jobs and meet their loan obligations, but it is still best to be cautious, said Diane Cheng, associate research director at the nonprofit Institute for College Access & Success.

Student loan debt in the United States rose to $1.38 trillion at the end of 2017, up $68 billion from the year before, according to the Federal Reserve Bank of New York. Serious delinquencies declined slightly in the fourth quarter from the prior three months, the report said, but "remain at a high level."

For instance, parents predicted on average that 13 percent of college costs would be paid with student loans. But the Sallie Mae study, which was published this week, found that the actual share of costs covered by loans in the 2016-2017 school year was 19 percent

Parents also predicted that their savings would cover 29 percent of college costs, compared with an actual share of 10 percent, the study found.

Here are some common questions about student loans.

Q: Do the higher rates apply to existing student loans?

A: No. The rates apply to federal loans taken out after June 30.

A: No, Cheng said. You can always borrow less than the full amount authorized in your financial aid package. If your circumstances change during the school year, you can contact your college's financial aid office about borrowing more, she said, up to the limits set by the government.

Q: Do the higher rates apply to private student loans, too?

A: No, the rates apply only to loans made by the federal government, and are fixed for the life of the loan. Rates on private loans, such as those from banks or other lenders, are set by the lender and may vary over the life of the loan. These loans also do not have the same protections as federal loans.