Interest rates on federal student loans are headed down.
The rate on Direct Loans will drop from 4.29 percent this past school year to 3.76 percent for the 2016-2017 school year, based on the results of a Treasury debt auction Wednesday.
Under legislation enacted in 2013, rates on federal student loans vary from year to year, because they are tied to the interest rates on the 10-year Treasury Security.
On Wednesday, the Treasury auctioned off 10-year notes with a high interest rate of 1.7 percent. The auction is the one the Department of Education will use, under the terms of the 2013 law, to determine its student loan rates for the school year.
The Department of Education has not formally announced any changes and declined to confirm that the rate would be 3.76 percent.
Sen. Richard Burr, R-N.C., however, didn’t wait for the formal announcement to claim victory for the 2013 legislation, which he co-authored.
The “announcement that student loan interest rates are dropping from 4.29 percent to 3.76 percent is a clear sign that the Bipartisan Student Loan Certainty Act is serving the best interest of students,” Burr said in a statement, claiming that North Carolina borrowers would save more than $1 billion because of the interest rate decline.
During the summer of 2013, Democrats, as well as independent Sen. Bernie Sanders of Vermont, who is now running a populist campaign for president as a Democrat, argued that the legislation would impose a hardship on students.
Then, under the existing law, student loan rates were set to jump from a low rate of 3.4 percent to 6.8 percent.
Few anticipated, however, that interest rates would remain so low for so long. In fact, when President Obama signed the bill into law, the rate on 10-year Treasuries was close to 2.7 percent, nearly a full percentage point above the current rate.
Rates have dropped despite the progress of the economic recovery and the Federal Reserve’s efforts to “normalize” interest rates. Although that macroeconomic development was unforeseen, it will provide a boost to student borrowers in the fall.
