As college students prepare to return to class in a few weeks, President Obama on Friday signed into law a new way of setting interest rates for federal education loans. The rates will now move with the financial markets, which means lower rates for the coming school year.
This change is expected to benefit the millions of students and their parents who will use federal loans to pay for this academic year, saving them hundreds of dollars in interest over the lifetime of the loan. But as the economy improves in the coming years, as it is expected to, those interest rates will likely climb and could soon be higher than current rates, unless Congress again acts.
For the coming school year, the interest rate for undergraduates is 3.86 percent, and for graduate students it is 5.41 percent. The rate for PLUS loans, which are taken out by parents of students and graduate students, is 6.41 percent. These rates will lock in for the lifetime of the loan. All are lower than the original rates of 6.8 for undergraduates and graduates and 7.9 percent for PLUS loans.