Many businesses featured on Money advertise with us. The opinions are our own, but the compensation and
extensive research determines where and how businesses can appear. Learn more about how we earn money.

The price of borrowing to pay for a college education will hit historic lows this year, with interest rates falling below 3% for federal undergraduate students. student loans this autumn.

The decline was expected after the Federal Reserve lower benchmark interest rates recently to stimulate the economy, but it was formalized after a Treasury Board auction Tuesday.

Rates for borrowers will be nearly two percentage points lower than what borrowers are paying this year.

Undergraduate student loans will carry a rate of 2.75%, down from 4.53%. For graduate students on direct unsubsidized loans, the interest rate will be 4.30%, up from 6.08% this year. And the rate for graduate students and parents taking PLUS loans will be 5.30%, down from 7.08%.

Federal student loan interest rates have been tied to the 10-year Treasury bill rate since 2013, when Congress decided to reset interest rates each year based on market conditions.

The new interest rates, which take effect July 1, only apply to borrowers who take out loans in the upcoming 2020-21 school year. However, these rates are fixed for the life of the loan, meaning borrowers will continue to pay the new, lower rates for years to come. Since rates are set each year and students can take out a new loan each year, it is common for undergraduate students to have separate loans with different interest rates upon graduation.

Ads by Money. We may be compensated if you click on this ad.A d

Refinance your student loans and save money.

By refinancing your loans, you can improve your interest rates while lowering your monthly payments. Get a free quote now by clicking below.

Begin

Fixed interest rates on federal student loans jumped to 6.80% for undergraduates in 2007, before being tied to Treasury bills. According to Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com. At that time, rates were as low as 2.88%.