Good news for most student-loan borrowers: Interest rates are going down

The interest rate on new federal student loans is set to drop for the 2019-2020 academic year. Students taking out undergraduate loans will pay an interest rate of 4.529%, according to estimates from Mark Kantrowitz, the publisher of Savingforcollege.com. That’s down from 5.05% for the 2018-2019 academic year.

Interest rates on direct unsubsidized loans for graduate students are set to drop to 6.079% from 6.6% last year. Rates on PLUS loans, which graduate students can use to pay for their education and which parents can use to pay for their children’s education, will drop to 7.079% from 7.6%.Private loan interest rates will likely remain unchanged. Typically, private lenders tie their student loan interest rates to the London Inter-bank Offered Rate, or LIBOR.

The interest rates set this year only apply to new federal student loans and are fixed for the lifetime of the loan. Borrowers who already have federal student loans won’t see their interest rates change. The Fed raised rates four times last year and signaled it would continue that pattern, but then essentially took a U-turn in policy and has left interest rates unchanged over the past several months. That may in part explain why the outcome of the auction is lower than last year.

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