College borrowing costs just got a little cheaper

By College PlanningFOXBusiness

Elizabeth Warren looks to erase student loan debt

Former George W. Bush senior staffer Brad Blakeman and Democratic strategist Kristen Hawn discuss some of the policies proposed by Sen. Elizabeth Warren (D-Mass.) ahead of the 2020 election.

Good news for college students who plan to take out a loan to pay for school: Borrowing costs just dropped for the first time in two years.

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For the 2019-2020 academic year, undergraduate loans will be 4.53 percent, down from 5.04 percent last year. Loans for parents of undergraduate students, meanwhile, fell to 7.08 percent from 7.60 percent. The lower rates will only apply to new loans for the upcoming academic year.

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The downward shift is indicative of a larger trend nationwide of falling interest rates, after a dovish pivot by the Federal Reserve at its June policy-setting meeting (the U.S. central bank heavily hinted at the possibility of a rate cut in July, depending on the global growth outlook and the U.S.-China trade spat).

The reprieve comes in the midst of skyrocketing student loan debt. In total, American families are carrying a whopping $1.6 trillion in debt, a share that’s roughly doubled since the mid-2000s.

According to Consumer Reports, however, the reduction in borrowing costs likely won’t have a significant impact on American families because the amount they can borrow is limited by the government, depending on your year in school and whether your parents claim you as a dependent. For instance, a student who takes out $5,000 and pays it back over a 10-year period would save $150 in interest with the new rates.

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The Federal Reserve began, after a prolonged period of net neutral rates, raising interest rates in 2015. But after nine increases, policymakers signaled during their latest meeting in June that a rate cut could be on the horizon, thanks to concerns about slowing global growth and the U.S.-China trade spat.

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