The Fed cut interest rates to 0%: here’s what it means for student borrowers
Updated on April 10, 2020
Student borrowers have suffered for years under the weight of excessive interest and debt. The average borrower across America has more than $37,000 in debt, and this figure continues to rise each year. As of 2020, Americans are drowning in $1.5 trillion in student loan debt, but this is about to change.
With the fast spread of the coronavirus across the globe, the Federal state recently announced it’s dropping its interest rates to zero. This move aims to help the US economy as businesses across the country shut down due to the coronavirus outbreak.
Additionally, the yield on the 10 year Treasury note (a barometer for borrowing rates and student loans) has plummeted, recording below 1%. This means that student loan borrowers could see their interest rates on their college debt drop as well.
The government usually sets annual rates based on the 10 year Treasury note. If the 10-year yield stays below 1%, federal student loans will drop significantly and, in turn, save students a lot of money in interest.
Unfortunately, the zero interest rate doesn’t directly affect student borrowers that have graduated or are in repayment. But, such borrowers may find some relief in the policy announced by President Trump to waive off the interest on federal student loans.
However, for new student borrowers for the upcoming 2020/2021 academic year, the Fed’s cut will ensure they get very low rates on their student loans. For the 2019/2020 academic year, the rate on undergraduate Stafford loans is 4.5%, but this will change since the loans for the upcoming year are subject to change.
Alternatively, students that use private student loans could also see a drop in their interest rates. However, this depends on the type of private loan a borrower has and its terms.
Need student loans?
If you’re considering applying for student loans for the 2020/2021 academic year, it’s a great time to start researching your student loan options. You could potentially get the lowest interest rates and have less debt when you graduate.
Contact StudentLoanify today for more information about student loans and student repayment options.