The Federal Direct Student Loan interest rates for the school year 2020-2021 have been determined by the government and there will be a significant decrease. Cheers all around. This will be for new federal loans disbursed between July 1, 2020, and June 30, 2021. The net decrease will be 1.78 from last year’s rate.
Families and students who are considering using Federal Direct Loan need to understand how these rates are calculated and the impact of this long-term student debt. It’s important to keep in mind that while the rates change every year, these changes will only affect loans during the upcoming period and have no effect on previous loans.
The federal student loan interest rates change each year on July 1st. The interest rate is based on the May Treasury note auction each year plus the Department of Education add-on fees.
This student loan interest rate impacts direct subsidized, direct unsubsidized, direct graduate, and direct plus loans. The interest rates are fixed for the life of the loan based on the loan type borrowed. If the federal loans are consolidated, then the new federal consolidated loan will have a new interest rate using the average of the loans.
(To learn more about all types of loans available, please read our comprehensive article on student loans.)
In addition to the interest rate, there are processing fees associated with these loans, and these fees change depending on the type of loan the student or parent is using.
The following table provides the interest effective for new Direct Loans disbursed starting July 1, 2020, and before June 30, 2021.