Need Financial Aid? Federal Student Loans Are Cheaper Than Ever
- If you’re an undergrad, you can expect a 2.75% interest rate on a Federal Direct Stafford loan for this upcoming academic year, this will be down from 4.53% interest rate during the past school year.
- For graduate students, federal graduate loans will have a 4.3% interest rate, down from 6.08%. As for federal PLUS loans, interest rates will be 5.3%, down from 7.08%.
- The rates apply only for new loans taken out for this academic year, between July 1, 2020 and July 1, 2021.
Going back to college in the fall and need financial aid? You’re in luck, interest rates on federal student loans are about to hit a record low!
I know, you probably just wrapped up your semester and the last thing you want to think about is college. However, as much as we’d like to not talk about college now, if you will need financial assistance in order to attend classes, then the earlier we start talking about, the better.
Super Low Rates on Federal Student Loans
If you’re planning on applying for federal student loans for the fall semester, rates on these loans are about to be the lowest they’ve ever been. If you’re an undergrad, you can expect a 2.75% interest rate on a Federal Direct Stafford loan for this upcoming academic year, this will be down from 4.53% interest rate during the past school year.
Interest rates for other types of loans fell, too. For graduate students, federal graduate loans will have a 4.3% interest rate, down from 6.08%. As for federal PLUS loans, which are additional loans available to parents and graduate students, interest rates will be 5.3%, down from 7.08%.
How Much Should You Expect to Save?
Well, you can expect to save quite a bit of money with the new rates. The savings on a federal student loan is about $1,000 in interest per $10,000 borrowed in a 10-year repayment period. So that’s about $100 in interest per year. For graduate students taking on larger federal PLUS loans at higher rates, average total savings on interest charges would be $2,797, based on a 10-year term.
Who Qualifies for These Lower Rates?
Remember that these new rates on federal student loans do not apply to everyone. They only apply only for new loans taken out for this academic year, between July 1, 2020 and July 1, 2021. Not existing loans. Current loan holders aren’t allowed to refinance old federal student loans to take advantage of the new interest rates.
What If You Have Existing Loans?
If you have existing high interest federal student loans, you could consider refinancing these loans into private student loans. However, keep in mind that by refinancing your loan into a private student loan, you would lose federal student loan benefits. Current federal loan protections include deferments and forbearance, and income-driven repayment and loan forgiveness options. Also, private loans may have variable interest rates, which can start out low but may increase over the life of the loan.
Are There Fees for Borrowing Federal Student Loans?
Yes. The fee for direct loans for both undergrad and graduate students is about 1.1% of the loan amount. Additionally, you need to have borrowed before Oct. 1, 2020. If you borrow $5,500, for example, the fee is about $60. Fees are deducted from the loan amount before your college receives the funds.
The fee for PLUS loans is about 4.2%. On a $10,000 loan, that would be about $420.
Unsure of Your College Plans Because of Corona?
It might be hard to even think about college now given that some schools might not hold in-person classes in the fall. But if borrowing for college was part of your plan to begin with, it’s very worth thinking about staying with your plan.
It is probably best to stay on track, rather than to delay starting college. Why? Well, jobs and structured gap-year programs may be difficult to come by in the coming year for students who defer admission.