How are student loans affected by interest rates? Find out what things you should know about your own loans and before taking on new loans for yourself or your children.
Hello, welcome to Arista Advice.
Question of the week is: "Paul, with interest rates dropping, how does that affect student loans?
Many students rely upon student Federal loans, which have fixed interest rates, and those interest rates are set annually in May, and they are based on the 10 year treasury.
As you'll see the graph below, in January of 2020, the 10 year treasury note was at 1.7%, and now it's all the way down to .70.
The Fed's recent action in March with the SECURE act, with the supply and demand, and also with interest rates dropping has caused the 10 year treasury to drop to significant lows.
So what is the effect on the actual rates? In 2019, the interest rate for undergraduates was 4.53 and interest rates were 6.08 for graduate students. Now in 2020, the federal student loan interest rate is 2.75 for undergraduates and 4.3% for graduates.
It is also important to know what type of student loan you have, whether it's subsidized or unsubsidized, and four key characteristics of those loans as you can see.
Three things really important to know:
Know what type of loan it is - subsidized or unsubsidized.
Number two: know the cost and the interest rates and the duration of the note whether it's variable or fixed and what the fees are.
Number three: Know when repayment begins. Talk with your service provider and make sure that you're not paying more than you should be paying on student loans.
Have a great week. We look forward to talking to you soon.