Student Loans

Student Loans: Current Interest Rates for 2020-2021

Starting college always brings new challenges, but this year, students face a unique set of obstacles. From completely remote classes to strict social distancing rules to reduce the chances of a COVID-19 outbreak on campus, this fall semester will be anything but ordinary. And for many students, one of the biggest struggles this year will be figuring out how to pay their college bills.

Several recent surveys have highlighted the financial concerns of families. In one, six in 10 families reported a negative impact on their family budget as a result of the pandemic, and the number of families whose children will need to use student loans to pay for college increased from 42% in January to 53% in June .

Another early-summer survey of 76,000 incoming and current college students in California found that 71% reported losing some or all of their income due to shutdowns or budget cuts caused by the pandemic. Nearly half of them said their living arrangements had changed, resulting in additional expenses they hadn’t planned for this fall.

Worrying about not being able to pay rent and other educational expenses has “added a lot of stress that distracts me from my academic goals,” said one survey participant. Another of hers said that her mom had lost both of her jobs and, as a result, her financial plans for college had changed.

If you don’t have enough money to pay your college bills or rent, one option is to check your financial aid office for additional scholarships. You may need to file an official appeal to get more help.

But if money isn’t available that way, borrowing is one of the only other options you can explore to fill the gap, even if classes have already started and you previously turned down federal loans that were included in your financial aid package.

Jill Desjean, a policy analyst for the National Association of Student Financial Aid Administrators (NASFAA), says that if you change your mind, you can always contact your school’s financial aid office to review your application. and accept their federal loans, as long as they are still enrolled for the academic year for which the loans were preapproved.

If you’re considering borrowing more money, here’s an overview of federal and Parent PLUS loans, as well as private student loans and refinancing.

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Federal Student Loans

If you need to borrow for college, federal student loans should be the first option you explore, as they are easy to access. They do not require a credit check and almost any student with good academic standing can get them. Federal loans also offer more flexible repayment options than private loans. Annual loan limits range from $5,500 to $12,500, depending on school year and dependency status.

If you’ve maxed out on federal student loans and still need some extra money, you can ask your parents if they’d be willing to take out a Parent PLUS Loan. Parent PLUS loans have much higher limits than college student loans, since their parents can borrow the equivalent of their full costs of attendance.

But because the limits are higher, parents need to be very careful not to take on too much debt, as this could represent a major financial setback down the road, especially for those closer to retirement age. It’s also worth noting that since these loans are issued in your parents’ names, they require them to pass a simple credit check to be approved.

Regardless of the type of federal loan you choose, one of the main advantages is that they take the guesswork out of how much your interest will be, since all applicants get the same preset rate for that particular year. specific loan they applied for, and you do not have to make any payments while you are in school.

Interest rates for federal student loans are set each year using the results of the 10-year Treasury note auction each May. Those rates affect all federal student loans disbursed between July 1 and June 30 of the next year.

Due to the economic events that have taken place since the pandemic began in March, the Federal Reserve decided to cut interest rates close to zero to encourage the flow of credit to consumers. As a result, interest rates have fallen to record lows, meaning federal student loans for the 2020-2021 academic year will have the lowest rates ever.

Here is a breakdown of current interest rates:

Federal Student Loan Rates: 2020 to 2021

  • Subsidized and Unsubsidized Direct Loans for College Students – 2.75%
  • Unsubsidized Loans for Graduates or Professionals – 4.3%
  • Direct PLUS Loans – 5.3%

Compared to last year, students will pay 1.78% less interest, which could save you hundreds or thousands of dollars over the life of the loan. For example, if you took out an undergraduate loan last year for $7,500 with an interest rate of 4.53% and a standard 10-year repayment plan, you’ll pay about $1,840 in interest. If you take out the same loan this year, on the same repayment plan, but with an interest rate of 2.75%, you’ll only pay $1,087 in interest.

Private Student Loans

Private student loans are an option to bridge the financial gap when you’ve exhausted all other types of financial aid avenues, including federal loans.

Martin Lynch, compliance manager and director of education at Cambridge Credit Counseling Corp., says students should only use private loans as a last resort, and should be as conservative as possible with the amount borrowed. “Always max out federal loans first,” Lynch, who is also a member of the board of directors for the American Financial Counseling Association, says.

Unlike federal loans, which only have fixed interest rates, private student loans offer both fixed and variable interest rates. The specific rate you get will depend on your (or your parents’) creditworthiness. With a fixed rate, your payments stay the same for the life of the loan, while with a variable rate, your payments can fluctuate based on current market conditions.

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Most private student loans currently use the 3-month London Interbank Offered Rate, commonly known as “LIBOR,” as a benchmark for setting their interest rate ranges. LIBOR generally tracks the fed funds rate closely.

In June, the Federal Reserve announced that the target fed funds rate will remain near zero possibly until 2022. In other words, private lending rates are unlikely to rise any time soon.

Here are today’s private student loan rates for college students from some of the largest lenders in the country:

fargo wells

  • Fixed: 4.78% – 10.97%
  • Variable: 2.93% – 9.70%

sofi

  • Fixed: 4.48% – 12.01%
  • Variable: 2.15% – 11.91%

sally mae

  • Fixed: 4.25% – 12.35%
  • Variable: 1.25% – 11.15%

Discover

  • Fixed: 4.49% – 12.64%
  • Variable: 1.49% – 11.24%

college avenue

  • Fixed: 3.84% – 13.24%
  • Variable: 1.49% – 12.23%

Student Loan Refinancing

If you already have private student loans, there’s probably never been a better time to consider refinancing. With such low benchmark interest rates, your chances of getting a better interest rate are extremely high, especially if you have a good credit score of 720 or higher and a steady source of income.

Refinancing your private student loans can help you save money by lowering your interest rate. In some cases, it can also lower your monthly payment. If you have more than one loan, this may also be an option to help you consolidate multiple payments into one, plus it can help you free up a co-signer.

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When it comes to federal student loans, the situation is very different. Right now, most federal loans are in an interest-free period until the end of the year, so it doesn’t make sense to refinance federal loans until that period is over. But even after that period ends, refinancing federal loans isn’t always a good idea. “You would lose some of the benefits, like access to forgiveness programs,” says Brenda Hicks, director of financial aid at Southwestern College in Winfield, Kansas.

“It’s very hard to beat the interest rate on federal student loans, even if it’s an unsubsidized loan. Federal student loans are at 2.75% right now, and that’s unbelievable. I don’t think you can get a better rate than that unless you have amazingly good credit or an amazing cosigner,” she adds. However, Hicks says that for private or parent loans, refinancing might be a good move because rates in the private sector are at record lows.

Here’s an example of how much you could save by refinancing your student loans: Let’s say you currently owe $10,000 on a private student loan at 9% interest and you have 5 years to go. With that loan, you’ll end up paying off the balance of $10,000, plus $2,455 in interest.

If you refinance that $10,000 with the same 5-year term, but at a 4% interest rate, you’ll end up paying less each month and only $1,050 in interest. In this case, refinancing saved you $1,400.

Here are today’s refinance rates from some of the nation’s top lenders:

common link

laurel road

  • Fixed: 3% – 6.20%
  • Variable: 1.99% – 6.10%

I laughed

  • Fixed: 3.23% – 6.68%
  • Variable: 2.24% – 6.04%

sofi

  • Fixed: 3.24% – 6.34%
  • Variable: 2.24% – 6.34%

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