Current Interest Rates Student Loans
Interest rates are a difficult concept to understand, but they have a huge impact on the cost of student loans. A student’s loan interest rate is determined by their year in school, whether they’re attending graduate or undergraduate school and what type of loan they’re getting. In this article we’ll explain how current interest rates affect student loans so you can make an informed decision about your next payment plan.
How current interest rates affect student loans
The interest rate on your federal student loan is determined by a number of factors. The most important factor is the current 10-year Treasury rate, which is currently at 2.5%. This rate is lower than the average rates seen in recent years (above 3%), but it’s expected to remain low over the next several years. Rates are projected to rise slightly in 2020 and 2021 before leveling off again around 2022 or 2023.
The interest rate for federal student loans is, for most borrowers, determined by the 10-year Treasury note plus an additional margin, which is set each spring. The current rate for undergraduate loans is 6.6%, and 5.0% for graduate and parent PLUS loans. (The chart below shows historical rates.)
Private student loan interest rates are also variable and are tied to the prime lending rate + 1%-5%. The current average private student loan interest rate is 4.7%.
Federal student loan interest rates
You can find the current interest rates on federal student loans by:
- Searching for “current interest rate student loans” in your search engine
- Looking at this list, which is updated every year as soon as the new rates are announced.
The interest rates are set by Congress, and they’re based on a variety of factors: The Federal Reserve Board sets an annual benchmark rate, which is then used to determine how much banks should charge consumers (since they use their own bank balances to determine how much they charge students). That benchmark rate has been between 2% and 5% since 2011. Also important is the Consumer Price Index (CPI), which measures inflation and helps determine whether or not you get cost-of-living increases for your paycheck—and thus whether or not you need higher wages. If inflation goes up too much above 2%, then it makes sense for college graduates’ salaries to increase so that they can keep pace with rising prices—but if inflation stays low enough that it doesn’t significantly impact your income over time, then it also makes sense for college graduates’ incomes not change very much from year to year either: They’d lose out on any meaningful increase if their salary went up faster than inflation did! From there, Congress uses these two numbers along with other economic data points such as unemployment rates when deciding how high student loan rates should go each year
Private student loan interest rates
Private student loan interest rates may be variable or fixed, and they can change monthly. Private student loan interest rates are typically higher than federal student loan interest rates. Private student loans, like federal loans, are primarily based on the LIBOR index (London Interbank Offered Rate), which is a measure of how much banks charge each other for brief loans. The LIBOR index then determines your private student loan’s annual percentage rate (APR).
Here is what the current interest rate climate means for you.
Although the interest rate climate is not a good thing for everyone, it could be a boon for you. If you are paying off your loans right now and want to keep the same monthly payment amount, lower rates mean that your payments will be smaller compared to when they were at a higher rate. However, if you’re just starting out with student loans and don’t have much in principal, then lower rates may not help as much because it will take longer for you to pay off all of your debt.
This means that there are pros and cons for everyone when it comes to interest rates. Some people might benefit from them being low while others benefit from them being high and vice versa—it depends on where each person is in their financial journey and what type of loan(s) they have (private vs federal loan).
Interest rates on student loans are set by the federal government and can change from year to year. They aren’t always predictable, which makes it difficult for students to budget their finances accordingly. You may hear about a low interest rate one year and find yourself facing high inflation when applying for college loans the next time around. The best way to keep up with current interest rates is by reading news articles about them and finding out what your lender has planned for future investments in this area (if any).