Interest Rates on Federal Student Loans Will Drop

Millions of students and families will now pay less to borrow money from the federal government to finance college in the coming academic year.

Interest rates on federal student loans are set to drop by more than one-third of a percentage point following the U.S. Treasury’s sale on Wednesday of 10-year notes. Rates are reset each year based on the yield of the note set by that auction.

The interest rate on new loans for undergraduate students will drop to 4.29 percent from the current 4.66 percent. The cost of new direct loans for graduate students will fall to 5.84 percent from 6.21 percent.

Rates on PLUS loans for graduate students or parents paying their children’s college costs will also tick down to 6.84 percent from 7.21 percent.

The new interest rates for the 2015-16 academic year take effect on July 1. The changes do not affect borrowers with older loans.