The interest rates on new federal student loans will fall by 1.779% from their current levels following the Treasury Department’s sale of 10-year notes on May 12. The new interest rates will be:
- 2.75% on undergraduate Federal Direct Stafford loans
- 4.30% on graduate Federal Direct Stafford loans
- 5.30% for Federal Direct PLUS loans (including Grad PLUS and Parent PLUS loans)
These new rates go into effect for new federal loans disbursed between July 1, 2020 and June 30, 2021 and are fixed for the life of the loan. Existing loans will not be affected.
It’s worth nothing that all federally held student loans have a temporary interest rate of zero, as interest has been suspended under H.R. 748, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, until September 30.
Impact on Institutions of Higher Education
At a time of great uncertainty in higher education, these historically low interest rates may create positive incentives for borrowers, helping to mitigate the impact of the broader economic turmoil on postsecondary institutions.
Formula for Federal Student Loan Interest Rates
Interest rates on federal student loans are set annually based on the high yield of the final 10-year Treasury Note auction in May. This year's May 12 auction resulted in a high yield of 0.700%. The following table reflects the new interest rates as calculated using this new benchmark.
10-Year Treasury Note
Fixed Interest Rate
|Federal Direct Stafford – Undergraduate||0.700%||2.05%||2.75%|
|Federal Direct Stafford – Graduate||0.700%||3.60%||4.30%|
|Federal Direct Grad PLUS||0.700%||4.60%||5.30%|
|Federal Direct Parent PLUS||0.700%||4.60%||5.30%|