Federal Student Loan Rates Drop

Students taking out federal student loans in the fall will pay less interest

Shaun Plum
MoneyTips Contributor

Borrowing Student Loans

Federal Student Loan Rates Drop
July 4, 2016

For the second year in a row, the interest rates on federal student loans will drop, starting on July 1. They affect anyone receiving federal loans, including undergraduates, graduates, and parents taking out PLUS loans. The new rates are as follows:

  • Undergraduate loan rates dropped from 4.29 to 3.76 percent.
  • Graduate student loan rates dropped from 5.84 to 5.31 percent.
  • PLUS parent loans have dropped from 6.84 to 6.31 percent.

These changes are the result of regulations put in place in 2013. Congress made the decision to stop setting loan rates every year, and instead, to base the current rate to the same as that of a 10-year Treasury note from the spring prior to July 1 each year. A small set increment is then added. This rate is locked in, which means the student will never face a rate increase later on.

Under these regulations, student loans have seen considerable drops in the past two years. With tuition prices increasing, though, it may not mean that students will pay less for their education because many will have to take out larger loans.

According to information from the Federal Reserve Bank of New York, the total U.S. student loan debt increased by $29 billion during the second quarter of 2016. In comparison, only $7 billion was added to the total amount of auto debt, while the total credit card debt actually decreased by $21 billion.

Find out quickly at what rate you can refinance your student loan.

Photo ŠiStockphoto.com/zimmytws

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