Federal student loans will be cheaper than ever
“Federal student loan rates have never fallen so far or so quickly,” said Robert Humann, managing director of Credible, a credit comparison site. “This is good news at a time when people are very conscious of their financial situation.”
Undergraduates can expect an interest rate of 2.75% on a Federal Direct Stafford loan this school year, up from 4.53% in the previous school year. Federal graduate loans will have a rate of 4.3%, down from 6.08%, and federal PLUS loans (for graduate borrowers and parents) will be at 5.3%, down from 7.08%.
With the new rates, the average total savings on interest charges will range from $ 669 for undergraduates to $ 2,797 for graduate students who take larger Federal PLUS loans at higher rates, based with a term of 10 years, according to Credible.
Impact of the new tariffs
No one predicted that the economic impact of the pandemic would push interest rates so low, said Mark Kantrowitz, financial aid and student loans expert and editor of Savingforcollege.com.
But, he cautions, the 40% drop in rates from last year on undergraduate loans doesn’t mean your monthly payments will drop that much too.
“Families tend to overemphasize the impact of interest rates on their monthly payment,” Kantrowitz said.
” Savings [on undergraduate loans] is about $ 1,000 of interest per $ 10,000 borrowed over a 10-year period, “he said.” That’s about $ 100 of interest per year. “
The new rates only apply to new loans taken out for this academic year, between July 1, 2020 and July 1, 2021, and not existing loans. Current loan holders are not allowed to refinance old federal student loans to take advantage of the new interest rates.
Uncertainty over the fall semester
Right now, the interest rate on federal student loans can be one of the safest things about college. There is no doubt that the financial situation of people is changing rapidly.
What should families in difficulty and student borrowers do?
If you’re having financial difficulty, he says, contact your college or university.
“Talk to them about any financial difficulty,” he said. “And tell your lender.”
You may need to appeal your Free Federal Student Aid (FAFSA) application on the basis of a change in income and provide proof of job loss.
Colleges are so tight, he said, that it’s in their best interests to work with you to find some extra help, because one student paying something is better than fewer students.
“If they’ve already admitted you, they won’t revoke your acceptance based on your needs,” Kantrowitz said. “They may not have additional help for you, but they won’t change your admission status.”