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In the midst of the coronavirus pandemic, there's some good news for college students who plan to take out a loan to pay for school next year: Borrowing costs just dropped to the lowest level in more than a decade.
For the 2020-2021 academic year, undergraduate loans will be 2.75 percent, down from 4.53 percent last year. Loans for parents of undergraduate students, meanwhile, fell to 5.3 percent from 7.08 percent. The lower rates will only apply to new loans for the upcoming academic year.
That could potentially save borrowers more than $9 billion in interest charges over the next decade, according to Credible. The average savings on loans taken out will range from $669 for undergraduates to $2,797 for graduate students.
Rates on federal student loans taken out during the 2020-21 academic year will be 1.78 percentage points lower than last year, potentially saving borrowers more than $9 billion in interest charges over 10 years.
The reprieve comes as the outbreak of the virus, which forced the U.S. economy to come to grinding halt, pounds Americans' finances. More than 33 million workers have lost their jobs since restaurants, bars, entertainment venues, clothing stores and universities were forced to shutter their doors, or dramatically change the way they operate.
To blunt the pain from the tandem health and economic crises, Congress has passed four massive relief packages totaling nearly $3 trillion. The CARES Act, the $2.2 trillion bill signed at the end of March, allows borrowers to defer their payments without interest for at least 60 days. Borrowers need to contact their loan servicers to ask for help if they want to take advantage of the deferred-payment benefit.
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 Tuesday).
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 spreading virus.
The new interest rates are effective July 1, 2020 through June 30, 2021.
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.