Federal Student Loan Interest Rates Plummet

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By Mark Kantrowitz

July 1, 2020

The interest rates on federal student loans have dropped as low as 2.75% fixed for new loans made from July 1, 2020 through June 30, 2021. 

The interest rate on Federal Direct Stafford loans for undergraduate students is 2.75%, a record low, down from 4.529%. 

The interest rates on Federal Direct Stafford loans for graduate students is 4.3%, down from 6.079%.

The interest rates on Federal Direct Grad PLUS loans and Federal Direct Parent PLUS loans is 5.3%, down from 7.079%.

The new interest rates will save borrowers about $1,000 per $10,000 borrowed on a 10-year repayment term. Based on average amounts borrowed, the savings will range from about $600 to almost $2,800, depending on the type of loan. 

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The previous record low for interest rates on federal student loans to undergraduate students was 2.875% in 2004-2005. The interest rates on new federal student loans for graduate students and parents are the lowest since 2004-2005. 

Borrowers cannot consolidate old federal loans into a new Federal Direct Consolidation Loan to obtain the new interest rates. Consolidation preserves the cost of the loans. However, borrowers may be able to refinance their federal loans into a private student loan to get a new fixed interest rate, if the borrower has excellent credit.

The interest rates on private student loans are higher than on federal student loans, but still very low. However, borrowers who refinance federal loans into private loans lose the superior benefits of federal loans, such as longer deferments and forbearances, income-driven repayment plans and loan forgiveness. 

Use our Loan Refinancing Calculator to see how much you can lower your monthly loan payments or total payments by refinancing your student loans into a new loan with a new interest rate and new repayment term.

A good place to start:

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