Lower federal student loan rates kicked in for 2016/2017 school year
You will pay聽slightly less interest on聽the life of your federal student loan if you鈥檙e taking one out for the upcoming school year than if聽you鈥檇 borrowed for last year.
Interest rates for 2016-17 kicked in on July 1, and they鈥檙e lower than the 2015-16 rates.
Congress sets federal student loan rates each year based on the 10-year Treasury note. The rates are fixed for borrowers 鈥� so if you take out a federal student loan this year, the interest rate will stay the same throughout the life of your loan. To apply for federal student loans, submit the Free Application for Federal Student Aid, also known as the聽.
FEDERAL STUDENT LOAN INTEREST RATES 2016-17
| STUDENT LOAN TYPE | INTEREST RATE | ORIGINATION FEE |
|---|---|---|
| Subsidized and unsubsidized direct (undergraduate students) | 3.76% | 1.07% |
|
Unsubsidized direct (graduate students) |
5.31% | 1.07% |
| Grad PLUS, Parent PLUS | 6.31% | 4.27% |
How federal student loan rates compare to private student loan rates
The new federal student loan interest rate for undergraduate direct loans, which is the most common type of federal loan, is 3.76%. The direct loan rate for graduate students is 5.31%, while the rate for聽PLUS loans 鈥斅爓hich are for graduate students and parents of undergraduate students 鈥� is聽6.31%. For聽comparison, the 2015-16 rates were 4.29% for undergraduate direct loans, 5.84% for graduate direct loans and 6.84% for PLUS loans.
In general, you鈥檒l get a lower interest rate on聽a federal student loan than on聽a private student loan. And federal student loans have benefits 鈥� such as income-driven repayment plans聽鈥� that will matter to you once you鈥檝e graduated and are paying back your debt, because they聽can lower your monthly payment. Private student loans have fewer such perks.
But if you or a co-signer have excellent credit, you could get a lower interest rate through a private lender. Unlike the federal government, which offers one interest rate each year for each loan type, private lenders offer a range of interest rates 鈥� anywhere from a 2.20% annual percentage rate for variable-rate loans to a 12.99% APR for fixed-rate loans. Borrowers with good credit can qualify for lower rates, but people聽with a not-so-good credit history聽could face聽higher rates. Most private lenders don鈥檛 charge origination fees.
There are dozens of lenders offering private student loans. If you decide to go that route 鈥� and we would suggest it only after you exhaust your federal options 鈥斅犅燽efore you choose one.
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email:聽teddy@nerdwallet.com. Twitter:聽.
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