Student Loan Rates Set to Drop for the First Time in 3 Years

Student loan rates will decline for the first time since in three years, dropping by 0.516 percentage points for the incoming academic year.

The rate for federal Stafford loans will drop to 4.529% while the rates for federal Stafford graduate loans and federal parent PLUS loans drop to 6.079% and 7.079%, respectively, according to Mark Kantrowitz, publisher and vice president of research at savingforcollege.com.

The Department of Education hasn’t announced the new loan rates yet, but since they key off the May 10-year Treasury auction and follow a long-standing formula, they can be calculated ahead of the DOE’s announcement. Ten-year Treasury rates have been falling steadily over the past year.

The rate for each loan category is set as a specific spread to the highest yield in the last 10-year Treasury auction in May (there is only one this year as in other previous years): 2.05% for undergraduate loans, 3.6% for graduate and 4.6% for Parent PLUS loans. The high yield at the 10-year Treasury auction on May 8 was 2.479%, down from 2.995% last year, according to savingforcollege.com.

The new rates are effective for loans made on or after July 1 through June 30 and won’t change during the term of the loans. Assuming a 10-year repayment term, the new interest rates will reduce monthly loan payments by about 2.4%, according to Kantrowitz.