Federal Student Loan Interest Rates Set To Decrease For The First Time in Three Years
College Students

Federal Student Loan Interest Rates Set To Decrease For The First Time in Three Years

EPF May 12, 2019

As the yield on the 10-year U.S. Treasury continues its path downward, Federal student loan interest rates are following right along. To calculate its Federal Student loan interest rates, the U.S. Department of Education takes the 10-year yield as its baseline. Then, the department adds an additional interest rate to compensate for its expenses. And for the first time in three years, the math is actually beneficial for borrowers.

Keep in mind though, the figures below only apply to new student loans. Prior balances are subject to the interest rates that applied when loans were first taken out.

The new 2019/2020 Federal interest rate schedule looks like this:

  • Undergraduate Direct Loans: 4.53%
  • Graduate Direct Loans: 6.08%
  • Graduate and Parent PLUS Loans: 7.08%

Conversely, the 2018/2019 Federal interest rate schedule looked like this:

  • Undergraduate Direct Loans: 5.05%
  • Graduate Direct Loans: 6.60%
  • Graduate and Parent PLUS Loans: 7.60%

Across all levels, student loan borrowers will save 52 basis points (0.53%) in interest when compared to previous borrowers. As an example, a freshman who takes out a $25,000 student loan repaid over 10-years, saves $758 in total interest compared to last year’s class.


What Types Of Federal Student Loans Are Available To Me?

The U.S Department of Education offers three main types of Federal student loans, with the fourth option providing loan consolidation:

  • Direct Subsidized Loans are made to undergraduate students who demonstrate financial need to help cover the costs of tuition, books and residency.
  • Direct Unsubsidized Loans are made to undergraduate, graduate and professional students who apply for a student loan but do not demonstrate financial need.
  • Direct PLUS Loans are made to graduate or professional students and parents of dependent undergraduate students to help pay for additional expenses not covered by other financial aid. Eligibility is not based on financial need, but a credit check is required and those with bad credit must meet additional requirements.
  • Debt Consolidation Loans allow you to combine all of your Federal student loans into a single loan.


How Much Money Can I Borrow With A Federal Student Loan?

Borrowing amounts are determined by your dependency status and your level of study:

  • Th amount that an undergraduate student can borrow using either a Direct Subsidized or Direct Unsubsidized Loan ranges from $5,500 to $12,500 per year. The eligible amount depends on your year of study and your dependency status.
  • If you’re a graduate or professional student, you borrow up to $20,500 per year in Direct Unsubsidized Loans. Funding for additional expenses can also be obtained through a Direct PLUS Loan.
  • Parents of dependent undergraduate students can also qualify for a Direct PLUS Loan to cover the excess costs not fulfilled by the options above.


What Are The Benefits Of Taking Out A Federal Student Loan?

Beyond just interest savings, Federal student loans have many other attractive features:

  • Interest rates on Federal student loans are fixed and usually less than private student loans.
  • Federal student loans don’t require a co-signer or a credit check.
  • You don’t begin repaying your loan until after you leave college or your enrollment status changes to less than half-time.
  • If you demonstrate significant financial need, the government can pay a portion of the interest on your loan while you’re in school and after you graduate.
  • Flexible repayment plans allow you to postpone your loan payments if you’re having financial trouble.
  • If you work in certain jobs, a portion of your Federal student loan can be forgiven.


How Do Federal Student Loans Differ From Private Student Loans?

Federal student loans are issued by the government, with their terms and conditions set by law. Conversely, private student loans are issued by banks, credit unions and state-based lenders, with their terms and conditions determined by the lender. In general, Federal student loans tend to be cheaper than their private counterparts.

Other differences include:

  • Federal student loans allow you to delay repayment until after you graduate or your enrollment status changes to less than half-time. Conversely, private student loans can require you to make payments while you’re still in school.
  • Federal student loans have fixed interest rates, while private student loans can be fixed or variable.
  • If you demonstrate significant financial need, the government can pay a portion of the interest on your loan. With a private student loan, you’re responsible for all interest owed.
  • Federal student loans don’t require a co-signer or a credit check. Private student loans can require both.
  • Federal student loans have no prepayment penalties. This can vary with private student loans.
  • Federal student loans can offer loan forgiveness, while private student loans usually don’t offer this feature.

Elite Personal Finance

Recommended Articles

The Best Travel Reward Credit Card Offers in 2016

Should I Purchase A Flight With Cash Or Miles?

EPF July 14, 2019

When travelling abroad or across the United States, you usually have the option to buy your ticket with cash or miles. However, a study by Bankrate.com found that 31% of card holders don’t end up redeeming their flight rewards. Surprising,...


How The Apple Card Is Revolutionizing The Credit Card Market

EPF July 7, 2019

When Apple first announced it was launching its very own credit card, loyalists and skeptics took notice. Designed with simplicity, transparency and privacy in mind, the credit card was meant to help consumers lead a healthier financial lifestyle. And with...

Recent posts
Find us on Facebook
Find us on twitter
Privacy & Security

Privacy and Security

Elite Personal Finance takes your privacy very seriously.

We always use a secure and up-to-date SSL certificate to provide a private connection to our site.

Learn more

We have a very transparent privacy policy.

Learn more

We help you to be safe online by writing guides on safety, security and identity theft.

Learn more

In addition, we collect only minimum and necessary personal details on our site. In brief, visiting our site is ultimately safe and secure. However, we have to say that no one can be 100% secure online.


DMCA.com Protection Status