Interest Rates Drop on Federal Student Loans

May 2015


In a turn that’s sure to spell relief for millions of students enrolling in college this year, interest rates on federal student loans are set to drop by more than one-third of a percentage point.

The news comes on the heels of the U.S. Treasury’s sale on Wednesday of 10-year notes tied to the interest rate on federally-backed student loans. Rates are reset each year based on the yield of the note set by this auction process.

The interest rate on new loans for undergraduate students will drop to 4.29% from 4.66%. Interest rates for new direct loans for graduate students will be 5.84%, down from 6.21%.

Rates on PLUS loans for graduate students or their parents will decrease to 6.84%, down from 7.21%.

The new interest rates for the 2015–2016 academic year are set to take effect on July 1, 2015.

Unfortunately these changes do not affect borrowers with older loans, though a number of bills are expected to be proposed this year that could change things for people paying higher interest rates on older federal student loans. Last year, Sen. Elizabeth Warren proposed the Bank On Students Emergency Loan Refinancing Act that would have offered refinancing for all federal and private student loans to current rates for first-time borrowers. The act died in the Senate twice last year, and its future remains uncertain.