If you need to take out student loans this year, the rates are finally decreasing. Having lower student loan rates can help reduce the amount you have to pay when they are due. The 2015-2016 federal loan interest rates take effect for loans taken out after July 1.
Federal student loans often have cheaper interest rates than private student loans – especially if you are an undergraduate student. This is why it's best to weigh your options with federal subsidized, unsubsidized and parent PLUS loans first.
Here are the current loan rates for federal loans:
- Direct Subsidized for Undergraduates: 4.29%
- Direct Unsubsidized for Undergraduates: 4.29%
- Direct Unsubsidized for Graduate Students: 5.84%
- Direct GRAD PLUS for Graduate Students: 6.84%
- Direct Parent PLUS for Parents: 6.84%
What You Need to Know about the New Loan Rates
What you may or may not know is that even just a slight decrease in the federal student loan rates can lower the amount of money you have to pay when your loans are due. Since interest is calculated daily for unsubsidized loans right after you take them out – and after your grace period for subsidized loans – you could potentially spend quite a bit of money on interest payments aside from the amount of money that actually goes toward the principal balance.
In addition, these rates won't apply on any older loans you have that were taken out for the 2014-2015 school year or before. If you have older student loans from previous years, you can always consider consolidating or refinancing your loans and read more details about that below.
Use our student loan refinancing calculatorto see how much you can save!
Lowering Your Student Loan Payment
If you need to take out student loans, it's best to do so when you can lock in a lower interest rate. If you'd like to lower your interest rate even more, when it's time to repay your federal loans, you can always opt to make payments via automatic withdrawal.
By agreeing to have your monthly minimum student loan payment automatically withdrawn from your account each month, your federal lender may slightly lower your interest rate on your student loans as an incentive. Plus, paying back your loans is something you don't want to forget about. Late and missed payments can lead to default, fees, and other consequences.
Enrolling in monthly withdrawals will automate the student loan repayment process and give you peace of mind knowing that your payments will always be on time.
Consider Refinancing Later Down the Line
Refinancing is always an option you can consider later down the line. While you shouldn't count on it because no one can foresee their financial situation in the future, you should consider the effect if could have on your student loan repayment process.
If you are currently paying back some loans, you should also look into refinancing options to see if you could save money by lowering your interest rate(s). You can refinance your federal or private student loans through a private lender. This involves taking out a new loan (with new terms) at a lower interest rate to pay off your student loans.
If you have federal loans and choose to refinance, you will no longer be eligible for federal relief programs like loan forgiveness, deferment, and forbearance, to name a few. If you feel that you won't need these programs and your credit is good enough to help you get a much lower rate, then you still may want to consider refinancing as an option to lower your federal student loan rate even more.
To wrap up, not taking out any loans at all or just a small amount would be best. However, given that fact that higher education is expensive, not everyone has that luxury. That's why low interest rates are so popular. If you lock in a low enough interest rate and only take out enough loans to meet your basic needs and requirements and nothing more, you can keep your student loan debt manageable.