The cost of college education is becoming more expensive. Not only are many institutions of higher education raising tuition, but the cost of borrowing to finance college education is expected to rise. Soon, student loan interest rates on both federal and private loans will be the highest in ten years. In the 2023-2024 academic year, rates on federal Stafford Loans for undergraduates will be 5.5% on new loans—up from 4.99%. Rates on federal PLUS loans for parents needing help to pay for their children’s education, will be 8.05% on new loans, which is up from 7.54%. These rate increases are linked with U.S. Treasury Bonds and also the Federal Reserve’s (Fed’s) attempts to control inflation.
Unlike federal student loans which have fixed rates, private student loans are generally variable. That is, rates fluctuate over time. Private loans are also influenced by the Fed’s efforts to manage inflation. Recently, a 5-year variable-rate private student loan averaged 13.69%. This rate represents an increase of 4.5% over last year. While, some fixed rate options do exist on private loans, the rates are also high. Recent fixed-rate, 10-year private loans averaged about 7.45%, which is up two points from last year.
How do these rising interest rates on student loans affect Black students? Recent data details how African American students fare with student loans. Fifty percent of Black students take out student loans, with about one-third of all loans going to these students. The average cumulative amount of student loans taken by Black students is $22,550 for undergraduate education. This amount is higher than any other group. Thus, African Americans are financing a greater share of their education costs with loans.
For some, using loans for college was unaffordable before the rate hikes. This is due in part to barriers for wealth-building due to systemic racism as well as unequal funding and lack of investment in HBCUs.
Another aspect of unaffordability is educational redlining. That is, lending institutions charge higher loan rates to students attending Historically Black Colleges and Universities (HBCUs). This practice is illegal and the Department of Justice is charged with enforcing the nation’s fair lending laws.
The long and short: Rising student loan rates will impact students from all groups. However, for some African American students, a college education may well be out of range because it now costs much more to finance it.
In order to assist our HBCU student residents, Student Housing of America, Inc., (SHA) gives support in the form of scholarships. To date, we and our corporate partner have issued twenty-six scholarships at $3,000 each, for a total of $78,000. SHA provides multiple support programs to create a stable living environment through need-based grants and zero-interest loans. SHA also provides a pathway to success through informational videos and seminars on subjects such as financial management, security, and mental and physical wellness so that students can realize their aspirations. Finally, at our properties, we provide rent insurance so that student residents are not affected by bad credit stemming from unpaid rent and can have a future with little to no setbacks.
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