There has finally been some good news when it comes to student loans. The federal government is going to drop interest rates to the lowest they have been ever.
For those who are planning on taking out a loan for college during the academic year of 2016 to 2017, interest rates will be set at 3.76% which is a considerable drop from last year. The interest rate from the previous year was set at 4.29%. For the loans taken out by parents of students, interest rates are lowered to 6.31% compared to 6.84% from the previous year. These drops are definitely good news for those in need of financial assistance, and hopefully they will lead to a new trend of lowered rates.
Since federal student loan interest rates are fixed, this drop in interest rates is especially important. Students who are taking a loan out for 2016-2017 are going to enjoy historically low interest rates throughout the life of the loan. Those who need a loan for the upcoming year are getting a lucky break compared to previous years.
The government interest rates are tied to the previous auction of the ten year treasury note rather than tied to the market. Congress decided to set interest rates instead of relying on the market in order to keep rates from rising since some loans began reaching close to 7%. The most recent auction occurred on May 11 which is why the rates have just been set low.
To put this policy change into perspective, borrowers who took out loans between 2013 and now saved about $50 billion in total interest payments. The student loan debt situation definitely might have been worse if different policy were set in place since 2013.
For many student loans are the bane of existence, but now undergraduates who need a loan can enjoy a little bit of leeway when paying off interest. Hopefully, these trends are translated to other types of loans such as refinancing and consolidation rates. Implementing a federal refinancing policy has been a topic as of late, but this new interest rate is actually lower than the proposed refinancing rate.
The main take away from this is hope. The government is going to disperse loans at this new great interest rate due to its own system. This was not the result of some sweeping resolution or bill, but it is the end result of a system set in place three years ago.
At any rate, students taking loans now are receiving great deals, but of course, there is always a chance of rates rising in the future.