Hats off to lower rates.
Matthew Borkoski Photography—Getty Images
By Kaitlin Mulhere
May 11, 2016

The interest rate for undergraduate students taking out federal loans will soon dip slightly, to 3.76%, based on new Treasury rates announced today. That’s down from a 4.29% rate this year.

For graduate students and parents who take out PLUS loans, the interest rate will be 6.31%, down from 6.84%, Graduate students can also take direct loans at a rate of 5.31%, down from 5.84%

Those rates take effect July 1, and they’ll be fixed over the life of any loans that are taken out during the 2016-17 academic year.

Federal student loan interest rates have been tied to the rates on 10-year Treasury notes since 2013, when Congress decided to have the loans reset every year based on market conditions..

While the decrease is generally good news for consumers’ monthly payments, the half-point change won’t lead to a drastic decrease in your monthly bills when you’re repaying your loans. Still, it is considerably less than the price students who borrowed just five years ago paid, when interest rates were more than 6%. Jason Deslisle, who has researched interest rates as the federal education budget project director at New America, said in a tweet Wednesday that the upcoming year’s loans will be a “record low.” (Rates were slightly lower in 2003-04 and 2004-05, but those were variable rates, unlike today’s fixed rates.)

For advice on taking out student loans, read our Smart Ways to Borrow for College checklist.

 

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