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Student Loan Interest Rates to Reach Record Lows

Written by Mark Kantrowitz | Updated March 11, 2022

The Federal Reserve slashed the Federal Funds Rate by 1.0% percentage point to a target range of 0.00% to 0.25% on Sunday, March 15, 2020. The Federal Reserve will also use quantitative easing to bring the effective interest rate below zero.

This will cause the interest rates on federal and private student loans to drop to record lows.

Interest rates on federal student loans will likely decrease to about 2% for undergraduate Federal Direct Stafford loans, about 3.5% on graduate Federal Direct Stafford loans and about 4.5% for Federal Direct Grad PLUS and Federal Direct Parent PLUS loans for new loans first disbursed on or after July 1, 2020.

Interest rates on federal student loans are fixed for the life of the loan.

The previous record low for interest rates on federal student loans was set in 2005, when interest rates dropped to as low as 2.875%.

Borrowers who have existing federal student loans cannot refinance them into new federal student loans to take advantage of the new interest rates.

Borrowers can refinance federal student loans and fixed-rate private student loans into new fixed-rate private student loans to benefit from the record low interest rates.

Borrowers who refinance federal student loans into private student loans lose the superior benefits of federal student loans, such as death and disability discharges, longer deferments and forbearances, income-driven repayment and any federal loan forgiveness options.

Interest rates on new private student loans may drop to as low as 2.8% on fixed-rate private student loans and to as low as 1.4% on variable-rate private student loans.

Interest rates on private student loan refi may decrease to as low as 1.9% on fixed-rate private refinance student loans and to as low as 0.50% on variable-rate private refinance student loans. Consider the pros and cons of refinancing, what’s required for approval and how to choose a lender for refinancing

It will take one to three months for the new interest rates on private student loans to fully phase in.

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About the author

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college. Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions. Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship. Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association. Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation. Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis. Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.

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