In the aftermath of the coronavirus pandemic, students borrowing for college will benefit from some of the lowest interest rates on record for federal student loans this upcoming school year.
Rates for federal loans issued between July 1, 2020 and June 30, 2021 will be 2.75% for undergraduate Stafford loans, according to the May Treasury auction, down from 4.53% this year. The lowest they’ve gone before was 2.88% in 2005, according to Mark Kantrowitz, who tracks the historical rates on his website Saving for College.
That’s a savings of around $100 per year in interest per $10,000 borrowed for undergraduate loans, according to Kantrowitz.
Graduate Stafford loans will have an interest rate of 4.3% this school year, down from around 6.1%, and grad PLUS and parent PLUS loans will be set at 5.3%, a decline from around 7.1%.
These rates apply to the federal loans taken out for the upcoming school year and are fixed over the life of the loan. They do not apply to those who have already taken out federal loans in previous years or to those with private loans.
How the coronavirus pandemic is changing college
While lower rates will be attractive for many college students, the coronavirus shutdowns have led others to consider dropping out or taking a gap year. College enrollment is likely to be lower next semester, according to education experts. The California State University system already announced it will not hold in-person classes in the fall for most students out of an abundance of caution.
Still, for those attending college in the fall and worried about cost, experts recommend filling out the Free Application for Federal Student Aid, otherwise known as the FAFSA, to receive grants, loans or work-study opportunities funded by the federal government.
Then, apply for federal student loans, which have lower interest rates than private loans and more protections for borrowers.
For those who already have federal loans, the Department of Education paused all payments for six months to provide some financial relief to borrowers during the coronavirus pandemic. Federal borrowers do not have to make payments again until October, with no interest accruing during this time.