How Much Will The Average Student Save with New Student Loan Rates?

Written By Mary Beth Eastman
Last updated August 15, 2019

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August 15, 2019

Simple. Thrifty. Living.

With a new school year comes a new set of rules for student loan borrowers. That’s because the U.S. Department of education cut interest rates on student loans for the 2019-2020 school year. It’s the first time the Department of Education decreased interest rates in three years. With such a momentous shift in interest rates, several implications occur. Here are a few impacts to consider:

Slashing interest rates means students can look forward to paying less in interest over the life of their loans. New borrowers can expect savings anywhere between seven and 10 percent. However, the actual savings you get depends on the loan you take out. The great news is that students have plenty of time to lock in this lower interest rate since it is for all new federal loans between June 2019 until June of 2020. That means the average borrower can look forward to saving on interest by $200 to almost $800 compared to previous interest rates for federal student loans.

The federal government lowered the origination fees on these new loans in addition to reducing the interest rates. The fees are scheduled to further drop from the current rates of 1.0262 percent to 1.059 percent for Stafford loans and from 4.248 percent to 4.236 percent for PLUS loans at the beginning of October 2019.

However, the new rate cuts only apply to new loans that you take out for this coming school year. That means existing borrowers can’t refinance their current federal loans to get the new lower rates. But you have the option to refinance loans using a private lender. It may make sense for some existing borrowers to refinance their student loan rates and take advantage of lower interest via private loans. For instance, if your credit is good, you have a stable income, and you can get a much lower interest rate, then it may make sense to refinance. Our list of the top student loan refinancing companies shows you top picks based on your needs.

Before you commit to a lender, it’s important to know you won’t have the benefit of a grace period to repay your loan after you finish a term of school like you would with a federal loan.


Lower interest rates also mean you can look forward to more affordable monthly payment plans once you finish school. Keeping monthly payments low are an important part of following a budget and staying on top of your debt. Plus, lower payments make it easier to repay loans when they become due.

From saving on the interest of your loan to paying less in fees, there are tons of benefits that come with the new interest rate cuts. However, it’s still essential to only borrow what you need. Consider your financial situation and your ability to pay back your loans so you can borrow responsibly before committing to a student loan.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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