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Blog » The Impact of Interest Rates on Graduate Student Loan Repayment

The Impact of Interest Rates on Graduate Student Loan Repayment

May 4, 2016

By Pamela Murphy, MSW, AACOM Vice President of Government Relations

It’s no secret medical students face a significant debt burden after graduation, but did you know that many medical students end up paying back 2-3 times the amount they borrowed?


Man paying bills


Recent graduates of osteopathic medical schools reported a mean debt level of almost $230,000. These loans accrue interest while students are still in school, and compounds during the years of residency training required to become a licensed physician. Over time, interest accrued on student loans greatly adds to a student’s debt burden.

The interest rates that students get on their loans can mean a difference of thousands of dollars over the life of their loans. However, most students don’t know much about how those interest rates are determined.

Who sets interest rates for student loans?

Every year on July 1, the U.S. Department of the Treasury sets the student loan interest rate based on the current financial market. Interest rates vary by type of loan, the year it was borrowed, and whether the borrower is an undergraduate or graduate student.

If interest rates are based on the market, how dramatically could they rise?

The Bipartisan Student Loan Certainty Act of 2013 tied the interest rates to the market, but also placed caps on the interest rates.  Under this law, interest rates are capped for graduate students at 9.5% for Federal Stafford loans and 10.5% for GradPLUS loans.

How long will it take for interest rates to meet those caps?

According to the Congressional Budget Office, those interest rates are projected to rise to their caps in the next 7-8 years.

How much will increasing interest rates cost graduate students?

Graduate students will face significant higher student loan debt once these higher interest rates are in effect. To illustrate this point, we took a look at what this change will mean to an osteopathic medical student with the average amount of debt under the 10-Year Standard Repayment option.



As demonstrated in the chart above, the average medical student is expected to repay $222,000 in interest alone at the current interest rates. As if this number isn’t staggering enough, if interest rates rise to the current caps, the amount of interest a graduate student must repay will nearly double.

This difference could make medical and other graduate and professional education less attainable for many students, especially low- to mid-income students.

How can graduate students advocate for lower interest rate caps?

Congress is currently negotiating the reauthorization of the Higher Education Act (HEA), making this the perfect time for graduate students to speak up on the issues that impact their student debt and their future. Send a message to your elected officials today, urging them to lower the current interest rate caps and consider the needs of medical and other graduate and professional students in the HEA.

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