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Federal Student Loan Interest Rates Will Drop July 1

Jun 30, 2016

Good news for students and parents who are borrowing money from the federal government for the upcoming academic year: The price of borrowing is about to hit a historic low.

New federal student loans issued after July 1, 2016, will be roughly half a percentage point cheaper than loans issued the year before.

Undergraduate student loans will carry a rate of 3.76%, down from 4.29%. 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%.

Federal student loan interest rates have been tied to the rates on 10-year Treasury notes since 2013, when Congress decided to have interest rates reset every year based on market conditions. That means rates for newly issued loans can change every July 1, but the rate you get at the time you borrow money will be fixed over the life of the loan.

Interest rates, of course, are only one aspect of a loan you need to consider before borrowing. You'll also want to know about origination fees, standard repayment length, and alternative repayment options. In all those cases, federal undergraduate loans for students tend to be more affordable and flexible than private loans.

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

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