More than one in three new grad PLUS loans will be refinanced in the next year, according to a new report from the National Association of Community Colleges and Universities.
The new data comes as the Federal Reserve continues to weigh the long-term economic impact of its stimulus package, including a possible rate increase in the coming weeks.
The NACCO report shows that graduates of institutions with at least 500 students will receive a $1 million loan modification, up from $700,000, or up to $1.5 million in interest, on their first repayment.
In the coming year, that loan modification will be capped at $2 million.
For students who have borrowed $2,000 or more in loans, the loan modification is $1 billion.
This will include $500,000 for borrowers who are already in repayment and $500 for borrowers with an additional $2.5 billion in student loan debt.
These refinancing payments will be made on a sliding scale, with higher-income borrowers receiving higher payments and lower-income students receiving lower payments.
The loan modification rate for borrowers of any income range is 7.8 percent, with $1million of the loan being the highest rate.
For those with a student loan, the rate is 6.5 percent, for borrowers at the top it is 5.6 percent, and for borrowers in the middle it is 3.3 percent.
In the next six months, the Federal Open Market Committee will decide whether to raise interest rates.
While the rate increase could affect borrowers in any income, this is likely to come after the end of the year.
The Fed is expected to begin making interest rate increases in the third quarter, and the Fed has been reluctant to raise rates even though it is the largest single source of monetary stimulus since the financial crisis.
The central bank’s policy of raising interest rates in the spring and summer months of each year, combined with the Fed’s large size, has allowed the central bank to increase its balance sheet to $3.4 trillion since January 2009.
With these refinancing options, NACOC will be able to offer new students with $100,000 to $200,000 loans, or $100 million to $250 million in total loans.
These loans will have loan modifications of up to 10 percent.