A small decline in interest rates on federal loans for next school year is the first in five years. It comes amid turmoil in student loan and financial aid programs.
There’s one small bit of good news for college students heading to campus in the fall who are borrowing to fund their education: The rates on new federal loans will fall, though ever so slightly.
The modest drop, announced by the federal Education Department on May 30, was the first in five years and translates into slightly less interest paid on money borrowed for college.
Specifically, the rate on loans for undergraduate students fell to 6.39 percent from 6.53 percent this year. The rate applies both to loans that are based on financial need, known as subsidized loans, and to those that aren’t. (With subsidized loans, students don’t have to pay interest on the debt while they attend college.)
On a loan of $5,500, the new rate would save a borrower just under $50 in interest over a standard 10-year repayment plan, according to an online student loan calculator.
Rates on loans for graduate and professional students eased to 7.94 percent, from 8.08 percent, while rates on PLUS loans — extra financing available to graduate students and to parents of undergraduates — fell to 8.94 percent from 9.08 percent.
The rates apply to student loans borrowed from July 1 through June 30 of next year.
Despite the dip, rates remain higher than they were in the past, said Mark Kantrowitz, a financial-aid expert. Rates on undergraduate loans averaged 4.77 percent over the last 10 years, he said, and were as low as 2.75 percent during the 2020-21 school year.