Federal student loans will be at cheapest level ever this school year

The new interest rates are effective July 1, 2020 through June 30, 2021.

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College students who plan to take out a student loan to pay for school next year will be the beneficiaries of the cheapest borrowing costs in history.

For the 2020-2021 academic year, undergraduate loans will be 2.75 percent, a drop from 4.53 percent last year. Loans for parents of undergraduate students, meanwhile, will fall to 5.3 percent from 7.08 percent. The lower rates will only apply to new loans for the upcoming academic year.

Rates on federal student loans taken out during the 2020-21 academic year will be 1.78 percentage points lower than last year, which could save borrowers more than $9 billion in interest charges over the next decade.

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The new interest rates are effective July 1, 2020 through June 30, 2021.

The reprieve comes as the outbreak of the novel coronavirus, which prompted an unprecedented shutdown of the U.S. economy, has hammered Americans' finances. More than 40 million workers have lost their jobs since restaurants, bars, entertainment venues, clothing stores and universities were forced to close, or dramatically change the way they operate.

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American families are carrying a staggering $1.6 trillion in student loan debt, a share that’s roughly doubled since the mid-2000s.

Each May, Congress sets federal student loan interest rates for the impending school year based on an auction of 10-year Treasury notes (which hit 0.70 percent on at the beginning of the month).

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The yield on the benchmark note has plummeted since the Federal Reserve, during two emergency meetings earlier this year, slashed interest rates to near-zero to blunt the economic pain caused by the virus.

The rates do not apply to private student loans, which are set by individual lenders. Still, rates on private student loans -- which are calculated differently -- are historically very low, too.

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