
Interest Rate Roulette: Low T-Bill Pricing Will Drop Interest Rates on Federal Student Loans
It's that time of year: rates on federal student loans were just reset for the 2016-17 academic year.
The rates on these loans are tied to the high yield of the 10-year U.S. Treasury note. The auction that was held on Wednesday will affect loans for the coming academic year. The yield was set at 1.71% for a $23 billion auction. Translated, that means money for student loans just got cheaper.
Jason Deslisle, federal education budget director at New America, a Washington, D.C.-based think tank, tweeted on Wednesday that rates on this next round of federal student loans will be a record low.
The 10-year T-bill became the benchmark for federal higher ed loans in 2013, when Congress began to reset rates annually in what was expected to be a rising interest rate environment. In July 2013, federal Stafford loans were set to double from 3.4% to 6.8%. Compromise legislation passed by Congress capped loans at 3.85% for the 2013-2014 school year, with new rates tied to the 10-year T bill, in what was expected to be a spiking rate environment.
Since then, the Federal Reserve, the U.S. central bank that sets monetary policy, has not delivered on anticipated serial rate increases. The Fed ended its program of buying back government debt and asset-backed securities, known as quantitative easing, in 2013, which was expected to lead to higher interest rates.
The rate on undergraduate Stafford loans will drop from 4.29% to 3.76% for the 2016-17 academic year. The rate on graduate Stafford loans will be 5.31%, a fall off from 5.84% this year. The rate on Parent PLUS and Grad PLUS Loans, which require a parent or guardian to act as cosigner, also dipped from 6.84% to 6.31%.
The rate drop of about 50 basis points isn't something that people with new federal student loans will feel immediately in their bank balances, but it will defer a day of reckoning--an anticipated rate rise by the end of the decade.









