Did you take out a student loan to finance your education within the last 10 years? Luckily, the federal government has taken several steps to ease the financial burden of borrowers through the HEROES (Health and Economic Recovery Omnibus Emergency Solutions) act.
According to the announcement, federally-approved loans taken from 2002 onwards are eligible for loan forgiveness — with conditions. Due to the financial hardship brought by the COVID-19 pandemic, interest rates for student loans that would have accumulated have also been set to 0% until September 30, 2021.
Unfortunately, for those taking out student loans now, interest rates will be placed on top of the principal loan amount. And, depending on your choice of financing, interest rates will vary.
To learn more about the current interest rates for student loans, whether federal or private, keep reading.
Since 2019, student loan interest rates have been steadily declining. In 2019, student loan interest rates funded by Federal Student Aid stood at just over 5% for undergraduate loans. The interest rate was higher for student loans made to finance graduate education, being nearly two percentage points higher than undergraduate loans (6.60%).
From 2020 until the early half of 2021, Federal Student Aid slashed interest rates by nearly half. Interest rates for the financing of undergraduate studies stood at 2.75%, while interest rates for graduate loans dropped by at least two percentage points (4.30%).
The exception to this declining trend arrived after May 2021, when an increase in interest rates was announced. From 2021’s 2.75% undergraduate loan figure, the new interest rate has been set a full percentage point higher (3.73%).
Graduate student loans are not exempted. Like undergraduate loans, the new graduate loan interest rate rose to 5.28% as per the announcement.
Unlike federal student loans, private student loans can vary greatly depending on the lender. It is important to know that there are large variations between private lenders. However, the lowest recorded interest rate seems to be 3%.
When applying for student loans, it isn’t enough to know the principal amount you have to pay back. Knowing your student loan interest rate will allow you to determine the correct amount you will need to set aside after you graduate.
Whether you decide to take a federally approved loan or one offered by a private lender, explore your options and choose carefully. Inquire about everything crucial, such as repayment details, and, most importantly, each one’s interest rates.