Highest graduate school rates seen under fixed-rate structure
Each spring, we closely monitor the U.S. 10-year Treasury yield. Student loan interest rates for the following academic year are adjusted based on where auctions for this note lands in May. For the 2023-24 academic year, the result is a continued trend of increasing student loan interest rates. In fact, the graduate school Direct Unsubsidized and Grad PLUS rates for loans commonly used by veterinary students will be the highest they have ever been since Congress moved to a fixed-rate structure in 2006.
Federal student loan interest rates use a fixed rate for the life of the loan. However, what that fixed interest rate is depends on the high yield of the last U.S. 10-year Treasury note auction before June 1st. The high yield plus a factor for your Direct loan type sets the fixed rate you are charged for the life of those loans received between the following July 1st through June 30th. For veterinary students, the graduate/professional school Direct Unsubsidized loan interest rate will be 7.05%, up from 6.54%, last year. The Direct Graduate Plus loan rate will be 8.05%, up from 7.54% last year.
Good news – The pandemic forbearance period that started on March 13, 2020, set interest rates to 0% for all eligible federal student loans. This special forbearance will continue, likely into August 2023. Therefore, all your eligible federal student loans, even those loans many students receive for the start of the 2023-24 academic year, will be interest-free for a bit longer. The impact of the pandemic forbearance on veterinary student loans has been quite beneficial, significantly lowering the interest that you normally accrue during veterinary school. Often, the in-school interest savings have been in the tens of thousands of dollars for recent veterinary graduates.
Not-so-good-news – With more than three years of forbearance benefits, it can be challenging to know what your current or previous interest rates are. The rates have been turned off for so long now, we find that many borrowers have come to accept this as normal. You’ll want to know what your interest rates are so you are prepared once interest starts accruing again.
Your School Cost Of Attendance
Veterinary students – Do not borrow more than you need just because student loan interest rates are zero for a little while longer. The less you borrow, the less interest accrues (long-term), and the less you’ll have to manage in repayment. It’s ALWAYS easier to manage less than more when it comes to student loans. Review your school’s published cost of attendance (COA) and look for ways to reduce the loans offered to you in your financial aid awards. When reviewing your financial aid award, make sure you have reached the maximum in Direct Unsubsidized Loans before you dip into the more expensive Grad PLUS category. While rare, we do see some veterinarians who take less in Direct Unsubsidized Loans only to end up using more Grad PLUS loans. Do yourself a financial favor and borrow as little Direct Grad PLUS loan as necessary to cover your actual costs.
As graduate/professional school students, you’re frequently offered student loans to cover the full COA. Use your personal budget to determine if you actually need to accept all the loans you are offered. The COA sets the maximum amount you can borrow. Your mission, if you choose to accept it, will be to accept only the amount you need to satisfy your budget, and ideally, less than the maximum COA.
Reducing Loan Awards And Returning Loans Vs. Paying During School
Too many veterinary students are making payments to student loans while they are in school and still borrowing. During the pandemic forbearance, some students are using new student loans to pay off old student loans while no interest is accruing. First, if you can afford to make payments on your student loans as a student, ask yourself where that payment money comes from. If you’re using federal Direct student loans to pay down other federal Direct student loans while interest rates are increasing, you’re not gaining any ground. Even if the funds you’re using are coming from your veterinary school job or from the help of a significant other, a less expensive plan would be to borrow less in future loans that have a higher interest rate rather than making payments to your loans during school.
Reduce your future loan awards or return loans that you received above your budgeted need to make the biggest impact on your total debt balance. You have up to 120 days to return the loan amounts you received that you might not need. When you return student loans, the principal, interest, and fees are also returned. Therefore, the loans you don’t borrow or the principal you return within the 120-day window will go much farther than paying the interest. To learn more, visit the VIN Foundation Borrow Better resource page.
If you are starting veterinary school this fall or returning next fall, use the VIN Foundation My Student Loans tool and In-School Loan Estimator to help you review your current student loans, interest rates, and project your graduation balance using this new interest rate information.
Here is a video tutorial on how to locate and download your student aid data file. These free tools help you account for loans you already have and help you estimate your total debt balance at graduation. You can even use the In-School Estimator to calculate how much you might save by returning unused student loans or reducing your future financial aid awards.
Less Expensive Borrowing Options
Health Professions Student Loans (HPSL) and Loans for Disadvantaged Students (LDS) are potential federal alternatives to Direct loans for veterinary school if they are available for your education program and if you are eligible to receive them. They do, however, require you to provide your parents’ financial information in order to determine your eligibility.
HPSL and LDS have an interest rate of 5% and they do not accumulate interest during school (subsidized loans). They can also be consolidated into a Direct Consolidation Loan after you finish veterinary school, making them eligible for income-driven repayment plans or public service loan forgiveness. Check with your school financial aid office for more details on availability and the application process for these special loan types.
Avoid Private Student Loans for Veterinary School
Steer clear of private student loans to fund your veterinary education. As long as you are attending an accredited veterinary college and are eligible for U.S. federal student loans, you will be able to borrow U.S. student loans up to your school’s cost of attendance. Federal student loans are the most flexible and least risky debt you will ever have.
Private student loans do not have the benefits, protections, and repayment options that come with your federal student loans. Even if you find private loans with a lower interest rate, the repayment options and hardship provisions will not be as beneficial compared to federal loans. Private student loans can even limit your career opportunities depending on the balance and deferment provisions. Make sure you have maximized all federal student loan options before you consider any kind of private student loan for veterinary school.
We’re here to help!
Happy budgeting this spring, summer, and fall. An ounce of planning is worth a pound of interest saved in repayment. Please feel free to reach out with any questions: studentdebt@vinfoundation.org.
VIN Foundation is here to help with understanding your veterinary school borrowing and repayment options now or in the future!
