Breaking News: student loan interest rates

In a welcome reprieve from the sea of bad news we’ve been drowning in lately, today we have some good news for student loan borrowers.  We now know what federal student loan interest rates will be for the 2020/21 school year, and… drum roll, please… those interest rates have dropped to historic lows!

For students and parents borrowing loans between July 1, 2020 and June 30, 2021, interest rates will be as follows:

  • Subsidized and Unsubsidized Direct Loans for undergraduate students: 2.75% (down from 4.53% in 2019/20)
  • Unsubsidized Direct Loans for graduate students: 4.30% (down from 6.08% in 2019/20)
  • Direct PLUS Loans for graduate student and parents of undergraduate students: 5.30% (down from 7.08% in 2019/20)

These rates represent a drop of 1.78% from last year’s rates, saving the average undergraduate student loan borrower up to $750 over the life of their loan, based upon dependent undergraduate annual loan limits ranging from $5,500 to $7,500 per year. Undergraduate parent and graduate student borrowers fully funding a year of schooling through federal loans could save ten times that.

The Federal Reserve Board, in the wake of the coronavirus emergency, has decreased interest rates to historic lows in an effort to stimulate the economy, and college loan rates have responded in kind. This rate drop is likely a small silver lining to college students and parents who may be struggling with reduced income and devalued investments in this difficult time. While we advise families to minimize education borrowing by saving for college, utilizing payment plans, applying for financial aid, and considering colleges with low sticker prices or offering generous scholarships, more affordable student loan options are certainly a welcome option to add to families’ tuition payment arsenals.

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Written by Shannon Vasconcelos
Shannon Vasconcelos is a college finance expert at College Coach. Before joining College Coach, she was a Senior Financial Aid Officer at Tufts University and Boston University. To learn more about Shannon, be sure to read her bio on getintocollege.com.