(Saul Loeb/AFP via Getty Images)
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Federal student loan interest rates drop to historic low

Samantha Fields May 12, 2020
(Saul Loeb/AFP via Getty Images)

If you’ll be taking out student loans for next year, you’re in luck — in one way. Interest rates on federal loans will drop to a record low starting July 1. 

For the 2020-2021 school year, rates will be 2.75% for undergraduate Stafford loans, 4.3% for graduate Stafford loans, and 5.3% for grad PLUS and parent PLUS loans. 

“It is a big drop, and I think it’s a reflection of the cuts to interest rates due to the pandemic,” said Mark Kantrowitz, who publishes the online resource Saving for College. 

The U.S. Department of Education has yet to officially announce the new rates, but they are calculated based on the high yield of the last 10-year Treasury Note auction in May, which took place Tuesday. 

While the new interest rate for undergraduate Stafford loans is not much lower than the previous record, of 2.875%, that was 15 years ago.

“That was actually attributable to 9/11,” Kantrowitz said. “Because after 9/11, the interest rates started going down, down, down, until they hit bottom in 2005.”

Since then, interest rates on federal student loans have been higher, ranging up to 6.8% for Stafford loans and 8.5% for graduate and parent PLUS loans. 

The 2020/2021 rates, Kantrowitz expects, will be “the lowest in a lifetime.”

Though, he added, he thought nothing could cause rates to go lower than they did in 2005, “other than space aliens landing on the White House lawn. That hasn’t happened, but — we have a pandemic.”

While low interest rates will save students and parents money, the cost of college, and the prospect of incurring tens of thousands of dollars in debt, is daunting for a lot of families. That’s true even in a strong economy, but even more so now, with a pandemic, ongoing uncertainty at most colleges and universities about whether the fall semester will be in person or online, Great Depression-era levels of unemployment and one of the toughest job markets in years.

“If you don’t get a job,” Kantrowitz said, “you’re still going to struggle to repay those loans.”

COVID-19 Economy FAQs

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

Give me a snapshot of the labor market in the U.S.

U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

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