Current student loan interest rates for 2020 and how they work

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student loan interest rates for 2020

Student loan interest rates vary across the board.

The Federal student loan interest rates for undergraduates is 4.53% for the 2019 - 2020 school year. Dropping significantly from the 2018 -2019 school year where it was at 5.05%.

Federal student loan interest rates for direct unsubsidized student loans are a bit higher at 6.08% for 2019 - 2020, dropping from 6.6% in 2018-2019.

PLUS loan rates are even higher than that at 7.08% for 2019 - 2020, dropping from 7.60% 2018 - 2019.

Private student loan interest rates vary amongst lenders. They average around 4.26% to 13.22% for fixed rates and 2.75% to 12.59% for variable rates for the current 2019 - 2020 term. As you can see, they can be lower than federal student loan interest rates but require excellent credit in order to attain the lowest interest rate.

Refinancing student loan rates can also be an option if you have good credit and can score you lower interest rates on your existing student loans. The 2019 - 2020 refinance rates are 3.14% to 9.02% fixed and 1.90% to 9.02% variable.

Student loan interest rates for 2019 - 2020

Refinance student loans
Fixed3.14% to 9.02%
Variable1.90% to 9.02%
Private student loans
Fixed4.26% to 13.22%
Variable2.75% to 12.59%
Federal student loans (fixed)
Undergraduate4.53%
Graduate7.08%
PLUS7.08%
Federal student loan interest rates by year
Academic yearUndergraduateGraduateParent PLUS, Grad PLUS
2019 - 20204.53% interest
1.06% fee
6.08% interest
1.06% fee
7.08% interest
4.25% fee
2018 - 20195.05% interest
1.06% fee
6.60% interest
1.06% fee
7.60% interest
4.25% fee
2017 - 20184.45% interest
1.07% fee
6.00% interest
1.07% fee
7.00% interest
4.26% fee
2016 - 20173.76% interest
1.07% fee
5.31% interest
1.07% fee
6.31% interest
4.28% fee
2015 - 20164.29% interest
1.07% fee
5.84% interest
1.07% fee
6.84% interest
4.27% fee
2014 - 20154.66% interest
1.07% fee
6.21% interest
1.07% fee
7.21% interest
4.29% fee

Source: U.S. Department of Education, Federal Student Aid
Interest rates effective July 1 of each year. Loan fees effective October 1 of each year.

Private student loan interest rates by lender for 2019 - 2020
LenderAPRGet started
get student loans with collegeaveFixed: 4.54% - 11.98%²
Variable: 2.84% - 10.97%²
Includes rates for undergraduate and graduate loans.
Includes autopay discount of 0.25%
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get student loans with salliemaeFixed: 4.74% - 11.35%³
Variable: 2.75% - 10.22%³
Includes rates for undergraduate loans.
Lowest rates shown include the auto debit discount
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get student loans with ascentFixed: 4.21% - 13.16%
Variable: 3.16% - 11.9%
Includes rates for Ascent's Tuition and Independent loans.
Includes autopay discount of 0.25%
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get student loans with commonbondFixed: 5.45% - 9.74%⁴
Variable: 3.31% - 9.29%⁴
Rates include a 0.25% autopay discount
Check my rate

Understanding student loan terminology

By now you’re probably wondering what all this means. The terms interest, fixed, variable, credit are used heavily when talking about student loans.

If you’re looking for what some of these terms mean, check out this post about understanding student loan interest rates. It goes over lenders, interest and more useful information you should know about your student loans.

>> Read: Understanding student loan interest rates

For a quick summary here’s a table with all the terms 

Interest

A percentage of the borrowed amount of money set by the lender that is required to pay back to the lender. Interest accrues daily during the life of the loan

Federal Loan

Loans made by the federal government that typically come with greater benefits than private loans. They are provided at one interest rate that is standard to everyone and set to the term.

Private Loans

Private institutions like banks and other lenders provide loans at fixed or variable rates that are determined based on the credit of the borrower or co-signer.

Subsidized

Loans that do not accrue interest while the student/borrower is in school at least half-time or during deferment periods. Require to fill out the FAFSA each year to prove financial need and qualify for subsidized loans

Unsubsidized

Loans that accrue interest while student/borrower is in school.  Do not require any proof of financial need for the loan and allow you to borrow more money

Variable interest rate

Interest rate changes periodically throughout the lifetime of the loan.

Fixed interest rate

Interest rate stays the same throughout the lifetime of the loan.

Average student loan interest rate 

Federal and private student loan debt is a $1.5 trillion problem in the United States. 

>> Read: Why the student loan bubble won't burst

Of that debt, the average student loan interest rate is 5.8% on roughly $30,000 per person. Meaning a borrower would pay about $9,600 in interest over a 10-year term.

About 90% of that student loan debt is federal, which contributes to the highly critical problem of the student loan bubble that’s at hand.

The average student loan interest rate is higher amongst households where the borrower didn’t complete a college degree or have incomes lower than $24,000, approximately 6.3% and 6.6% respectively.

How current student loan interest rates work

The standards for interest rates among federal and private student loans differ greatly. 

Federal student loans are mostly need-based and come with benefits during the payback period of the loan. 

Private student loans are credit-based, therefore lower interest rates are offered to borrowers with better credit scores and conversely, higher interest rates are offered to those with lower credit scores.

>>Read: Federal vs private student loans

Here’s a quick summary of the differences between federal student loans and private student loans:

Federal student loans:

  • Interest rates are fixed for the life of the loan - they do not change
  • Most have origination fees charged as a percentage of the total loan amount: 2019-2020 origination fee is 1.062%
  • Interest rates are set by Congress and are based on 10-year treasure notes, plus a fixed increase
  • These rates apply to all students independent of their credit history
  • Undergraduate students pay the least to borrow money for college where graduate students and parents pay more to finance education
  • Interest rates are capped by the formula from the Congressional Budget Office (CBO)
    • 10-year Treasure + 3.60%, 9.50% cap for direct subsidized loans
    • 10-year Treasure + 2.05%, 8.25% cap for direct unsubsidized loans
    • 10-year Treasure + 4.60%, 10.50% cap for Direct PLUS loans

 

Private student loans:

  • Interest rates can be variable or fixed depending on what the borrower chooses
  • Most private lenders don’t charge an origination fee
  • Interest rates tend to be credit-based, lower interest rates for good credit and higher interest rates for low credit
  • Variable interest rates are subject to change monthly or quarterly with no cap.

How interest rates work if you consolidate or refinance student loans

Most borrowers have multiple student loans at all different interest rates both federal and private. The borrower then has to juggle multiple lenders due dates, payments, and documents which can be a headache to manage.

How interest rates are affected by student loan consolidation

If you want to consolidate your federal loans for one easy payment, you would have to take the weighted average interest rate as your new interest rate through the consolidation with the federal government.

If you wanted to consolidate your federal and private student loans into one easy payment, you would have to consider a few things before doing so through a private lender:

  1. Are you receiving any benefits from federal loans such as income-based payments or loan forgiveness?
  2. Would the payment be lower if it were combined into one payment?
  3. Would you pay back more interest over the life of the loan by consolidating?

Consolidation tends to be a better option with federal student loan debt since you can maintain the benefits such as income-driven repayment options and student loan forgiveness.

How interest rates are affected by student loan refinancing

Refinancing student loans is another option to consider, especially if you have multiple private student loans. However, you can refinance both private and federal student loans alike. 

Refinance rates are credit-based, similar to private student loans. Borrowers with excellent credit will receive rates as low as 3.14% fixed and 1.9% variable. Borrowers with lower credit are subject to higher student loan refinance interest rates at around 9.02%.

There’s also no origination fee when refinancing student loans on top of a lower interest rate. 

Typically if you consider refinancing your student loans it’s for the following reasons:

  • Lower your interest rate
  • Customize your monthly payments
  • Combine multiple loans to simplify the payment process
  • Choose a new loan term
  • Remove a cosigner
  • Use a better lender that’s more trustworthy

If refinancing your student loans is something you’re considering, the following steps should be taken to make the most financially sound decision possible:

  1. Ensure you have a steady income from a full-time job. This signals you are more likely to make on-time payments and responsibly pay the lender.
  2. Examine your credit score, which takes into account your payment history on monthly bills, the types of loans and the debt you carry, debt-income ratio and several other factors. Anything above 600 will likely qualify you for a student loan refinance approval. The higher the better of course. Refinancing should only be an option if a lower interest rate is obtained.
  3. When shopping for a loan refinancing lender, you should do this in a short period, about one-month, signaling to credit bureaus that you are comparing offers rather than attempting to take out multiple lines of new credit. Lenders perform “soft pulls” on credit when giving you an idea of what their new interest rate will be. “Soft pulls” don’t impact credit score like a “hard pull” will, which is only performed when a final interest rate is given to you.
  4. If you have federal student loans, you should give careful thought to whether you want to refinance these types of loans. If you choose to carry through with the student loan refinance option on these types of loans, you give up any benefits you were taking advantage of or might take advantage in the future, like income-based payments, Public Service Loan Forgiveness and more. If these protections aren’t something that you think will impact you and you are confident that you will be in a better financial position by refinancing, you can make that choice.
  5. Explore the options the lender offers if you lose your job or can’t afford your monthly payments. You ask questions like whether or not interest will accrue if you defer or postpone payments, and what happens if you default on the loan.
  6. When picking a refinancing interest rate option, variable or fixed, it’s important you take into consideration how often the variable rate is adjusted and if there’s a cap on how high the interest rate can go. Variable rates are usually offered lower than fixed rates, but they are also riskier due to these fluctuations.
  7. Ask the lender if there are any discounts available on payments, such as opting into automatic debit which makes sure you make payments on time. Fill out all the necessary paperwork for these types of discounts and ask if you are eligible to resume these discounts if you postpone payments for example.

Calculate your savings when you refinance your student loans using our savings calculator

Student loan refinancing rates by lender for 2019 - 2020
LenderAPRGet started
refinance student loans with earnestFixed: 3.13% - 6.48%
Variable: 1.99% - 6.48%
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refinance student loans with collegeaveFixed: 3.54% - 6.24%
Variable: 2.62% - 6.12%
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refinance student loans with commonbondFixed: 3.21% - 6.45%
Variable: 1.81% - 6.29%
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refinance student loans with lendkeyFixed: 3.39% - 7.75%
Variable: 1.9% - 8.59%
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refinance student loans with credibleFixed: 3.03% - 9.02%
Variable: 2.15% - 8.88%
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Tips on how to repay student loan interest

Since most student loan interest accrues while you’re in school, aside from subsidized loans, your loans will be higher when you enter the repayment process than when you originally borrowed them.

This can be daunting when you’re just graduating and begin paying back student loans

Here are some tips to combat those feelings of being overwhelmed by student loan interest:

  • Make interest payments before your grace period - 6 months after graduation - ends. To avoid interest capitalization - when the interest that accrues while you’re in school is added to your principal balance and then that amount begins to accrue interest - make monthly interest payments as low as $25 a month while you’re still in school. Not only is $25 manageable but it can help you avoid costly interest payments when the grace period of your student loan ends.
  • Avoid paying the minimum on your loans if possible. Income-driven payment plans sound inviting and make paying the loan manageable, and may often be necessary, but if you can avoid this you should. Income-driven payments extend the life of the loan and ultimately cost you more interest over time. The standard 10-year plan is a good place to be, generally speaking.
  • Make sure you are in good financial health overall. It might be tempting to throw all your money at your student loan debt, but remember that there are other factors of financial health that are important too, such as contributing to your 401(k) or IRA, building an emergency fund, and paying off extremely high-interest credit card debt.
Next steps?
Get the lowest interest rate
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Explore more
Understand how to get student loan forgiveness

Less interest, more money

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Access the guide on how to refinance your student loans: