Americans holding federal student loans have just been slapped with the highest interest rate in over a decade.

According to the Department of Education, the interest rate on federal undergraduate loans will be 6.53% for the 2024-2025 academic year—the highest since the 2012-2013 academic year.

Meanwhile, the interest rate for graduate students will jump to 8.08% from the current rate of 7.05%.

PLUS Loans—paid by grad students and parents of undergrads, will carry the highest interest of 9.08%, more than one full point higher than the previous academic year.

The new rates will come into effect on July 1, 2024. As CNBC reported, borrowers can’t evade the new rates by borrowing ahead of the deadline.

Students taking on new loans face the one-two punch of higher financing costs and record tuition rates, making it more challenging to graduate without falling into a debt trap.

According to The College Board, the average in-state tuition for a Bachelor’s degree is $9,580 per year. For private universities, the average tuition for each academic year is a whopping $53,949.

Ironically, student financing costs are growing at a time when the Biden administration is doing everything it can to fast-track student debt forgiveness for millions of borrowers.

Racing against the clock

According to the Creditnews real-time student debt tracker, the Biden administration has forgiven more than $146 billion in federal student loans for 4 million borrowers.

If the president has his way, the government will deliver debt relief to an additional 30 million Americans in the coming months.

An April White House memo said that more than 25 million borrowers currently owe more than they borrowed “due to the interest rates on Federal student loans.”

Under Biden’s proposed plan, the government “would cancel up to $20,000 of the amount a borrower’s balance has grown due to unpaid interest on their loans after entering repayment, regardless of their income.”

To be clear, the president has no power to set student loan interest rates, which are benchmarked against the 10-year Treasury auction held in May.

What the Biden administration can do is offset the higher costs through debt relief. But with a presidential election on the horizon, Biden is racing against the clock.

According to the Center for Economic and Policy Research, Biden’s student debt relief mandate is unlikely to survive if Trump wins the White House.

“If the first Trump administration was any indication, a second would work to eliminate the federal tools that could help student borrowers instead of addressing the student debt crisis,” wrote researchers Alex Richwine and Algernon Austin.

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