Student loan rates are at historic lows: how to take advantage of them
College students who are faced with a new way of doing things in light of COVID-19 may have one thing heart. Federal student loan rates are at historic lows.
Starting July 1, federal student loan rates will drop to reflect the Federal Reserve’s decision this spring to push short-term rates close to 0%. The Fed noted in its March 15 emergency rate cut: “The coronavirus epidemic has harmed communities and disrupted economic activity in many countries, including the United States.”
Now, for the 2020-2021 academic year, the interest rate on federal student loans for undergraduates has fallen to 2.75%, from 4.53% last year.
“The interest rate of 2.75% is a new all-time low,” said Mark Kantrowitz, editor and vice president of research for Savingforcollege.com.
“The previous record was in 2004-05 when interest rates were as low as 2.875%.”
Graduating students envision rates of 4.3%, down from the old rate of 6.08%.
The Parent PLUS loan rate is 5.3%, compared to 7.08%. The rate is the same for Graduate PLUS loans.
How much can you save with lower rates?
Borrowers are expected to save billions of dollars over the next 10 years given the drop in rates.
The savings can be as little as a few hundred dollars, depending on the type and amount of debt, up to a few thousand dollars. A calculation estimates the possible savings of $ 669 for undergraduate students at $ 2,797 for graduate students taking Federal PLUS loans, according to estimates from Credible.com, an online marketplace to find lenders.
The new rates do not apply to private student loans or federal student loans that were taken out earlier to attend university.
The new reduced rates apply to federal student loans taken out between July 1 and June 30, 2021.
What Happens to College Game Plans?
Convincing someone that they still want to go to college in the fall might still be a tough sell, even in light of the lower rates. Many parents fear sending their children to school if the COVID-19 epidemics continue.
And college game plans aren’t what they used to be. Some families have experienced widespread layoffs and layoffs during the pandemic; some students are not making the kind of money they expected in hours or tips this summer.
For some families, however, it may be better to borrow a little more money if the student is already in college and may limit borrowing in future years if interest rates rise in 2022 or 2023. Some affluent families might want to give their investments a little more time to recoup.
But there is no guarantee that the stock market will not fall further in the years to come or that rates will not stay low for some time. We must recognize that not much is known about the long-term economic impact of COVID-19.
How to calculate the amount to borrow?
Some old guidelines still apply when deciding how much to borrow for college. You always want to borrow as little as possible – control your debt by choosing an affordable school, dipping into your savings, living as a college student, working some in school, and applying for scholarships.
A good rule of thumb is to aim to have total student loan debt upon graduation that is less than your starting annual salary, according to Kantrowitz. If you do this, you should be able to pay off your student loans in 10 years or less.
And watch carefully over the years how much you have borrowed in federal student loans, as well as private loans if you are tapping into those loans as well.
“Students should start developing a plan to repay their student loans before they graduate,” said Robert Humann, CEO of Credible.com.
“You should have a good idea of what your total student loan debt will be, the interest rates on each of your loans, and what you expect to earn with your degree,” Humann said.
If you have this information, you can use the Ministry of Education loan simulator to see what your monthly payments and total reimbursement costs will be in one of the government reimbursement plans. See studentaid.gov/loan-simulator.
The coronavirus pandemic is forcing universities to reconsider everything, from how classes will play out in the 2020 college football season.
And it is also possible that you can now benefit from additional financial assistance.
“My best advice is to appeal to more financial assistance if you have been financially impacted by the coronavirus pandemic, particularly if parents have lost their jobs or suffered a leave of absence or a pay cut, ”Kantrowitz said.
Keep in mind that many students likely applied for financial aid before preventative measures related to COVID-19 shut down much of the economy.
Students could start applying for financial aid for the 2020-21 school year in October 2019 – well ahead of the massive job losses and pay cuts we saw during the economic shutdown that was part of the struggle. against the coronavirus.
The 2020-21 FAFSA is based on 2018 earnings, Kantrowitz said.
And he noted that the 2021-2022 FAFSA – which students will start filing on October 1 – will be based on 2019 earnings, both of which are pre-pandemic and may not reflect current economic reality.
So it may be more important to file the FAFSA, but then contact your college to discuss your current financial situation. The school’s decision would be the last word and cannot be appealed to the US Department of Education.