U.S. student loan interest rates fall amid slowing coronavirus
Federal student loan rates have fallen to their lowest on record, offering savings to new student borrowers as the coronavirus pandemic hits the economy and cripples the U.S. university system.
Interest rates on federal student loans taken out in the 2020-2021 academic year will be 1.78 percentage points lower than the previous year, from 4.53% to 2.75%.
Graduate students can now borrow at a rate of 4.3%, compared to the old rate of 6.08%. Graduate and Parent PLUS loans went from 7.08% to 5.3%. Prices are in effect from July 1 to June 30, 2021.
“The drop in rates has a huge impact and will save 2020-2021 federal loan borrowers hundreds to thousands of dollars over the life of their loans,” Student Loan Hero’s Andrew Pentis told Yahoo Finance .
The rate cut is partly “partly a reflection of the economic recession,” James Kvaal, former Obama White House official and current president of the Institute for College Access and Success, told Yahoo Finance.
And although loans are becoming cheaper overall, Kvaal added that “we are very concerned that the combination of declining family incomes and state budget cuts will make the university considerably more expensive and drive more people. of students to borrow larger loans “.
Over $ 72 million in savings each month
The rates for new borrowers are adjusted annually and are calculated based on a formula linked to 10-year treasury bills. The new rates above are based on the results of Tuesday’s Treasure Auction.
Pentis added that overall, borrowers could collectively save more than $ 72 million each month in interest payments on loans taken out after July 1.
The company Credible estimates borrowers are likely to save over $ 9 billion in interest charges over the next decade. The company also estimated that the average student could save between $ 600 and $ 2,800 in interest charges on loans taken out since July over the next 10 years.
Concerns about the state of higher education
Unfortunately for government and university-backed loan providers, college enrollments appear to be plummeting amid the coronavirus pandemic.
There are currently fewer requests for Free Application for Federal Student Aid, or FAFSA, from high school students.
To help support colleges and universities across the country, Congress, through the CARES Act, and the Department of Education, have given them a lifeline, and more funding is likely to arrive in the coming weeks.
Aarthi is a reporter for Yahoo Finance.