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- Federal student loan interest rates are at an all-time low for the 2020-2021 school year.
- All federal undergraduate student loans will carry an interest rate of 2.75%, while graduate student loans are fixed at an interest rate of 4.3%. The previous record was 2.875% set in 2005.
- Interest rates this year are 1.78% lower than the previous school year for all types of loans.
- Learn more about getting or refinancing a student loan with CommonBond »
Federal student loans will be much more affordable in the 2020-2021 school year, according to new interest rates from the Department of Education.
Since March 2020, interest rates have fallen across the board as the Federal Reserve cut the federal funds rate. Lower interest rates will make federal and private student loans cheaper for this school year, sending the interest rate on federal student loans to record highs.
The federal interest rate on student loans changes each school year a student borrows money and changes depending on the type of loan taken out. For the 2020-2021 school year, borrowers will pay between 2.75% and 5.3%, depending on the type of loan.
All undergraduate students who take out unsubsidized or subsidized loans will pay an interest rate of 2.75%, while graduate students will pay 4.3%.
The interest rate on student loans this year is the lowest on record, beating the previous low of 2.875% set in 2005according to Mark Kantrowitz, student loan expert and vice president of research at Savingforcollege.com.
Over the past 10 years, undergraduates have typically paid between 5% and 3.4% interest, according to Department of Education data. Graduate student loans charged between 5.31% and 6.21%, and PLUS borrowers between 7.9% and 6.31%, depending on the academic year.
Last year, undergraduate student loans carried an interest rate of 4.53%, while graduate student loans carried an interest rate of just over 6% and PLUS loans at a little more than 7% interest. This year, students will pay 1.78% less than last year.
Former students can reduce their interest rate by refinancing
This school year’s lower interest rates will not retroactively change student loan interest rates. However, recent graduates can benefit from lower interest rates by refinancing their student loans. Refinancing, that is, replacing your existing loan with a new private loan at a lower interest rate, could help you reduce the interest rate on your student loan. With interest rates so low, you might find one lower than your current loan rate, and refinancing might help you save.
However, it should be noted that refinancing may cause you to lose all benefits, such as the protections the Department of Education has put in place during the coronavirus pandemic. All federal student loans in repayment are on automatic forbearance, with interest rates set at 0% and automatic payments suspended until September 30. Refinancing transforms federal student loans into private student loans, which are not eligible for this forbearance.