A Student Loan Strategy When Student Loan Interest Rates Increase

July 25, 2018 No comments exist

By Joseph Reinke, CFA, CEO of FitBUX

There is a lot of chatter among grad school students and new grads about the high-interest rate the Federal government charges on student loans. Unfortunately, starting this month, student loan interest rates will be even higher…

This article provides a brief background on the student loan “interest rate calendar” and a potential strategy for students to consider in order to mitigate part of the impact of student loan interest rate increases.

Student Loan Interest Rate Calendar 

Student loans are on an annual calendar that ends each June: the Federal government sets new student loan interest rates each June and those are the rates are from July till June the following year.

For example, Direct Unsubsidized Loans and Direct PLUS Loans for graduates students were 6.0% and 7.0%, respectively, for any loans taken out between July 2017 and the end of June 2018.

The new student loan interest rates starting this month are 6.6% and 7.6% for Direct Unsubsidized Loans and Direct PLUS Loans, respectively.

A Strategy To Think About

If you know you will need to borrow more money after June 2019 to complete your graduate degree, then you may want to contemplate the following strategy:

Financial experts predict that interest rates will continue to go up. This means that there is a high probability that student loans interest rates will go up again in July 2019.

So if you are currently not taking out the maximum in student loans this semester/quarter, you may want to max this out anyway and put the extra money you don’t currently need in the bank for now. All else equal, you would borrow less after June 2019, and use the money you took out now, at a lower interest rate, to help pay for schooling after June 2019.


The primary benefit of this strategy is having a lower interest rate on your loans, which will save you money over the long run when you are in repayment.


Loans aren’t cheap. If you are taking the loan today, two things will happen:

  • You will start deferring interest immediately. In other words, your loans, whether or not you start using them immediately, will start accruing interest right away.
  • In addition, you will have to pay an origination fee, which we call the “the fee you’re charged for the privilege to borrow."

In short, there is no free money...

Next Steps

So what exactly should you do? There is no cookie-cutter answer because one needs to take into account 1) the unknown timing of potential future rate increases and 2) how much additional loans one will need to take.

Therefore, if you are contemplating implementing this strategy, I highly recommend speaking with your FitBUX Coach so you can customize your solution and see if it makes sense for you to implement.

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