Interest Rates on Federal Student Loans Drop for 2019-2020

Mark KantrowitzBy Mark KantrowitzBy Savingforcollege.com

Interest rates on federal student loans will decrease by 0.516 percentage points for new loans made on or after July 1, 2019.

New federal student loan interest rates

The new fixed interest rates will be 4.529% on the Federal Stafford loan for undergraduate students, 6.079% for the Federal Stafford loan for graduate students and 7.079% for the Federal Grad PLUS and Federal Parent PLUS loans.

The loan fees are 1.062% for Federal Direct Stafford loans and 4.248% for Federal PLUS loans from October 1, 2018 through September 30, 2019. The fees will drop to 1.059% and 4.236% on October 1, 2019 through September 30, 2020.

What the decrease in student loan interest rates means for borrowers

The decrease in the interest rates will decrease the monthly loan payments by about 2.4%, assuming a 10-year repayment term. For most borrowers that yields an decrease of just a few dollars a month.

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

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


Formula for federal student loan interest rates

The interest rates on federal education loans are fixed, which means they remain the same over the life of the loan - but each year’s new loans have a new interest rate. The new interest rate is based on the high yield of the last 10-year Treasury Note auction in May. The 10-year Treasury Note auction on May 8, 2019 had a high yield of 2.479%, down from 2.995% the year before.

Congress specified the 10-year Treasury Note in the Higher Education Act of 1965 as the benchmark for federal student loan interest rates because it is the Treasury of closest comparable maturity.

The new interest rates may be calculated using the formula in this table.

Loan type

10-year Treasury Note

Increment

Cap

Fixed interest rate

Federal Stafford (Undergraduate)

2.479%

2.05%

8.25%

4.529%

Federal Stafford (Graduate)

2.479%

3.6%

9.5%

6.079%

Federal Parent PLUS

2.479%

4.6%

10.5%

7.079%

Federal Grad PLUS

2.479%

4.6%

10.5%

7.079%


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