Now, more than ever, the economic planning around a child’s education is even more important. The recent pandemic and market declines have parents re-thinking the means in which they will be funding their increasing children’s education costs. For instance, the average four-year cost for an in-state university is $87,800 and $199,480 for a private college. (Source: statista.com). These educational costs are not going down anytime soon.
No wonder that, according to a Gallup Survey, 73% of parents with children under the age of 18 worry about college funding more than any other financial matter even over items like medical costs and retirement planning.
As personal investments and 529 College savings plans have taken a hit, one college financial planning strategy to consider utilizing federal student loans. Here is a breakdown of the new interest rates for 2020-2021:
Federal Direct Stafford Loans for Undergraduate Students
For undergraduate students, the new rate will be 2.75% in 2020-21, down from 4.529% in 2019-20.¹
The previous record low interest rate of 2.875%, was reached in 2004-05.²
Federal Direct Stafford Loans for Graduate Students
For graduate students, the new rate will be 4.3%, down from 6.079%.³
Federal Direct PLUS Loans, including Grad PLUS and Parent PLUS loans
The new rate will be 5.3%, down from 7.079%.⁴
Note that borrowers cannot refinance old federal loans into new federal loans to obtain the new interest rates.
As there are many different nuances with federal student loan programs, parents should consult with their financial professional or university financial aid offices.
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