College Just Got Cheaper: Federal Loan Interest Rates Drop

Good news for students: federal student loan rates decrease.

By Kathryn Knight Randolph

May 21, 2015

College Just Got Cheaper: Federal Loan Interest Rates Drop

If you plan to borrow to pay for school during the 2015 – 2016 school year, there’s good news ahead. The cost to borrow just got cheaper.

New Stafford loans will have an interest rate of 4.29% and will save about $117 in interest over the life of a $5,500 loan, as stated by The Washington Post.

Graduate students will receive an interest rate of 5.84%. If a borrower takes out a $20,500 loan with this interest rate, he or she can expect to save about $457.44 with a 10-year repayment plan, according to The Washington Post. And finally, parents can expect an interest rate of 6.84% on the PLUS Loan.

On May 13, a 10-year Treasury Note auction was held, which ties the rate of federal student loans to auction yield results thanks to Congressional legislation passed in 2013, according to Forbes. By tying interest rates to the Treasury Note auction, interest rates are now contingent on how the market is doing, making rates more reasonable for borrowers. Forbes also reports that this legislation capped future interest rates for undergraduate student loans at 8.25%, ensuring that as the market grows interest rates won’t increase at an astronomical pace.

It’s ok if most of that goes over your head. The bottom line is that interest rates have gone down for the upcoming academic year. Many experts are touting this as a great time to borrow for current students. Undoubtedly, as the market grows, interest rates will increase to meet the caps. In the meantime, students that plan to borrow can enjoy the lower rates.

While borrowing for college is definitely viewed as a burden by most, federal student loans are the best type of loans because of the lower interest rates and flexible repayment plans. However, as students plan to borrow to pay for school, there are a few things they must keep in mind.

First, never borrow more than your expected starting salary after graduation. For those students that are undecided, glassdoor.com states that the national average is $42,963, which gives borrowers somewhat of a threshold for borrowing. Borrowing your expected starting salary ensures that you’ll be able to meet the demands of a monthly loan payment. Falling behind on your student loan payments is a serious matter, sometimes resulting in the federal government garnishing any wages you make. So make paying back your student loans on time each month a priority.

Second, educate yourself on loan repayment options before the time comes to pay back student loans. Federal student loans have a grace period of six months before borrowers are required to make payments; however, they should be using that time to diligently research their repayment options in order to find the plan that best fits their income and lifestyle.

Finally, continue the scholarship search as well as saving for college – even while you’re in college. Every dollar won or saved is a dollar less that you’ll have to borrow to pay for school, which is also less interest you’ll have to pay.

As you borrow for school, remember to frequently check your Scholarship Matches for new opportunities, and calculate your future loan payments with our Loan Payment Calculator. We’ll help you navigate the road of borrowing and paying for school during and after college.

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