Lower federal student loan rates kicked in for 2016/2017 school year

If you’re taking out a student loan for the upcoming school year, you will pay slightly less interest than if you had borrowed last year.

|
Jacquelyn Martin/AP/File
Prospective students tour Georgetown University's campus in Washington.

You will pay slightly less interest on the life of your federal student loan if you’re taking one out for the upcoming school year than if you’d borrowed for last year.

Interest rates for 2016-17 kicked in on July 1, and they’re lower than the 2015-16 rates.

Congress sets federal student loan rates each year based on the 10-year Treasury note. The rates are fixed for borrowers — so if you take out a federal student loan this year, the interest rate will stay the same throughout the life of your loan. To apply for federal student loans, submit the Free Application for Federal Student Aid, also known as the FAFSA.

FEDERAL STUDENT LOAN INTEREST RATES 2016-17
STUDENT LOAN TYPE INTEREST RATE ORIGINATION FEE
Subsidized and unsubsidized direct (undergraduate students) 3.76% 1.07%
Unsubsidized direct
(graduate students)
5.31% 1.07%
Grad PLUS, Parent PLUS 6.31% 4.27%

How federal student loan rates compare to private student loan rates

The new federal student loan interest rate for undergraduate direct loans, which is the most common type of federal loan, is 3.76%. The direct loan rate for graduate students is 5.31%, while the rate for PLUS loans — which are for graduate students and parents of undergraduate students — is 6.31%. For comparison, the 2015-16 rates were 4.29% for undergraduate direct loans, 5.84% for graduate direct loans and 6.84% for PLUS loans.

In general, you’ll get a lower interest rate on a federal student loan than on a private student loan. And federal student loans have benefits — such as income-driven repayment plans — that will matter to you once you’ve graduated and are paying back your debt, because they can lower your monthly payment. Private student loans have fewer such perks.

But if you or a co-signer have excellent credit, you could get a lower interest rate through a private lender. Unlike the federal government, which offers one interest rate each year for each loan type, private lenders offer a range of interest rates — anywhere from a 2.20% annual percentage rate for variable-rate loans to a 12.99% APR for fixed-rate loans. Borrowers with good credit can qualify for lower rates, but people with a not-so-good credit history could face higher rates. Most private lenders don’t charge origination fees.

There are dozens of lenders offering private student loans. If you decide to go that route — and we would suggest it only after you exhaust your federal options — compare your private student loan options before you choose one.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

This story originally appeared on NerdWallet.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Lower federal student loan rates kicked in for 2016/2017 school year
Read this article in
https://www.csmonitor.com/Business/Saving-Money/2016/0706/Lower-federal-student-loan-rates-kicked-in-for-2016-2017-school-year
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe