Thanks, Federal Reserve: Student loan rates to rise July 1

If you are heading back to school and planning to take out federal student loans next year, keep in mind that they are about to get more expensive.

Interest rates on student loans are going up, after new rates were set through an annual Treasury auction held this week.

As of July 1, for the 2017-18 school year, the rates will be 4.45 percent for undergraduate and 6 percent for graduate student loans, compared to rates of 3.76 percent for undergraduate and 5.31 percent for graduate loans in the 2016-17 school year.

The increase is a ripple effect from the Federal Reserve's recent decision to hike interest rates as the U.S. economy has improved. The Federal Reserve sets rate policy in accordance with their Congressional mandate to pursue maximum employment and price stability, or inflation. 

Overall student loan debt totaled $1.3 trillion in 2016, according to the New York Federal Reserve. That report showed recent graduates with student loans leave school with about $34,000 in debt, a nearly 70 percent increase over the last decade.  

A standard repayment schedule for federal student loans is 10 years.  An undergraduate loan of $34,000 borrowed at the new rate over a 10-year payment schedule will be $1,300 more expensive. 

Is the extra debt cost worth it? The answer depends on each individual's situation. But, generally, students with college degrees tend to have higher earnings over time compared those who do not earn higher education credentials.  A 2015 College Board report showed median annual earnings of bachelor's degree recipients with no advanced degree who worked full time were $24,600 greater than those of high school graduates.

The most recent jobs report showed unemployment at 2.4 percent among workers with a bachelor's degree or higher, compared with a 4.6 percent rate for workers who only had a high school diploma.