Federal Student Loans Will Be at Cheapest Level in More Than 10 Years

For this school year, federal student loans will reportedly be at its cheapest level ever.

Undergraduate loans will be dropping to 2.75 percent for the 2020-2021 academic year. Fox Business explains that this is “a drop from 4.53 percent last year. Loans for parents of undergraduate students, on the other hand, will fall to 5.3 percent from 7.08 percent. The lower rates will only apply to new loans for the upcoming academic year.”

Travis Hornsby, Founder and CEO of Student Loan Planner, explains the formula. He says: “In 2013, Congress created the current formula for setting federal student loan interest rates under The Bipartisan Student Loan Certainty Act. The Department of Education uses the yield from the 10-year May Treasury Note auction to set the rates that millions of students will borrow at.”

Federal student loans will be at cheapest level ever this school year – Fox Business https://t.co/xRBMIQ1MVC

— Observatory (@BankforBanks) May 29, 2020

With that formula, we know that student loan interest for the 2020-2021 school year will be at the lowest level in more than a decade. Undergraduate interest rates will be at their cheapest level ever, while graduate school interest rates will be at their lowest level since around 2002-2006.

The lower percentage points this year could save borrowers more than $9 billion in interest charges over the next decade, according to a report by Fox Business.

The new interest rates are effective July 1, 2020 through June 30, 2021.

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