Interest rates for federal student loans may drop to their lowest level ever.
Here’s what you need to know – and what it means for you.
College and graduate school may become much cheaper starting this fall. That’s good news for students and parents who borrow student loans to fund their education. While tuition may not decline, interest rates on new federal student loans will be significantly lower than last year, which can save you money. Each May, Congress (not the U.S. Department of Education) sets federal student loan interest rates for the upcoming school year based on an auction of 10-Year Treasury notes. Treasury yields have plummeted over the past year due to several interest rate cuts by the Federal Reserve and COVID-19, among other factors. The new interest rates are effective July 1, 2020 through June 30, 2021. The new interest rates for federal student loans for the 2020-2021 school year will be announced today around 1:30 pm Eastern Time. (You can check back then for the updated rates). Here are the estimated new rates for federal student loans based on the 10-Year Treasury yield of approximately 0.70%:
Undergraduate Student Loans (Subsidized and Unsubsidized)
- Current Rate: 4.53%
- Estimated New Rate: 2.75%
Graduate Student Loans (Unsubsidized)
- Current Rate: 6.08%
- Estimated New Rate: 4.30%
Parent PLUS Loans and Grad PLUS Loans (PLUS Loans)
- Current Rate: 7.08%
- Estimated New Rate: 5.30%
Student Loans: Q&A
Do these new rates affect existing student loans?
Unfortunately, these new rates apply only to new federal student loans borrowed between July 1, 2020 and June 30, 2021.
Do these new rates also apply to private student loans?
Unfortunately, the new rates do not apply to private student loans. Rates for private student loans are governed by individual private lenders. If you need private student loans, the good news is that interest rates for private student loans are historically very low as well.
Who will benefit the most from these new student loan rates?
Anyone who plans to borrow federal student loans between July 1, 2020 and June 30, 2021 will benefit from the new student loan rates. This may include undergraduate students, graduate students, parents and grandparents as a few examples. With these lower interest rates for student loans, students may choose to return to campus this fall, rather than take a gap year or otherwise defer admission due to COVID-19.
My student loan payments are already paused under the CARES Act. How does this affect me?
If your existing federal student loans are currently paused and your interest rate is temporarily 0%, you are already paying off student loans. These rate changes are for new federal student loans only. If you plan to borrow federal student loans for the fall semester, for example, you can benefit from the CARES Act and the lower interest rate for your new student loans. Remember, the benefits of the CARES Act (absent an extension by Congress) will expire September 30, 2020. Thereafter, you will resume federal student loan payments at your regular interest rate.
How can I get a lower interest rate on my student loans?
Student loan refinancing is the best way to get a lower interest rate. This is particularly true now because student loan refinance rates are incredibly cheap. You can refinance federal student loans, private student loans, or both. Undergraduate, graduate and Parent PLUS Loans are all eligible. When you refinance student loans, you receive a new student loan from a private lender, which is used to repay your old student loans. If you are struggling to repay student loans or need access to income-driven repayment plans, then refinancing federal student loans is not recommended for you. However, if you want a lower interest so you can pay off student loans faster, then student loan refinancing helps you get one student loan, one monthly payment and a lower interest rate. The lower interest rate is what helps you save money each month.
This student loan refinancing calculator shows you how much money you can save through student loan refinancing.
Student Loan Repayment Options
Whether you are already in student loan repayment or plan to borrow new student loans, make sure you have a solid student plan to pay off student loans. These four options are a good place to start: