Student Loan Interest Rates Drop to Record Lows for 2020-2021
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By Mark Kantrowitz

May 12, 2020

Interest rates on federal student loans will drop by 1.779% percentage points for new loans disbursed between July 1, 2020 and June 30, 2021.

New Federal Student Loan Interest Rates

The new interest rates will be the following:

Interest rates on federal student loans are fixed for the life of the loan.

The previous record low for interest rates on federal student loans was set in 2005, when interest rates were as low as 2.875%.

Loan fees remain at 1.059% for Federal Direct Stafford loans and 4.236% for Federal Direct PLUS loans through September 30, 2020. Loan fees will decrease to 1.057% and 4.228% on October 1, 2020.

Impact on Loan Payments on Federal Loans

Monthly loan payments on new federal student loans will be about $8.37 lower per $10,000 borrowed, an 8.1% decrease, assuming a 10-year repayment term. This will save borrowers about $100 in interest per year and about $1,004 in total interest over the life of the loan, per $10,000 borrowed.

Use a student loan calculator to check how the new interest rates will affect your loans. 

New Interest Rates Do Not Affect Old Federal Loans

The new interest rates do not affect existing student loans, just new loans.

Borrowers cannot refinance old federal student loans into new federal student loans to take advantage of the new interest rates.

Borrowers may be able to get lower interest rates by refinancing their federal loans into private student loans. However, borrowers who refinance federal student loans into private student loans lose the superior benefits of federal student loans, such as the current payment pause and interest waiver, death and disability discharges, longer deferments and forbearances, income-driven repayment and loan forgiveness options.

Interest Rates on Private Student Loans

Interest rates on new private student loans have dropped to as low as 4.0% on fixed-rate private student loans and to as low as 1.5% on variable-rate private student loans.

Interest rates on private student loan refi have decreased to as low as 2.99% on fixed-rate private refinance student loans and to as low as 1.99% on variable-rate private refinance student loans.

Interest rates on private student loans are credit underwritten, meaning that you must have an excellent credit score to qualify for the best advertised interest rates. Most borrowers will get a higher interest rate.

Be careful about comparing variable interest rates on private student loans with fixed rates on federal student loans. Variable rates can increase, while fixed interest rates do not change.

If you’ve exhausted scholarships, grants, financial aid, and federal loans, and decided a private student loan is right for you, check out our objective ranking of the best private lenders

Formula for Federal Student Loan Interest Rates

Each year, the interest rates on federal education loans are based on the high yield of the last 10-year Treasury Note auction in May. The 10-year Treasury Note auction on May 12, 2020 had a high yield of 0.700%, down from 2.479% the year before. The interest rates are based on the 10-year Treasury Note because it is the benchmark of closest comparable maturity.

This table illustrates the calculation of the new interest rates.


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