The burden of borrowing for higher ed just got a little lighter– for now. Capping months of partisan debate, Congress in August changed the formula behind federal education loan interest rates.
The rates for loans taken out for any given school year will now be based on the yield of the 10-year Treasury note the prior summer.
The upshot: This year the APR on federal student loans will be 4% — slightly higher than the previous rate for subsidized borrowers (who don’t run up interest charges while in school), but a big savings on unsubsidized loans, which had been set at 6.9%.
Rates on new parent PLUS loans will be 7.4%, after fees, down from 8.8%. Loan costs for future borrowers, though, could rise again with the market.
Students should stick with federal loans, but parents with good credit can find lower rates elsewhere. SunTrust, for one, recently offered fixed APRs as low as 4.5% on five-year education loans.