Thanks to continued economic sluggishness, the interest rates on federal student loans are going even lower for the coming school year.
Lower rates are here
There’s a little known government debt obligation called the 10-year Treasury note that is used as an economic barometer to set student loan rates for the forthcoming school year. Recently, it’s been trading right around a very low 1.71%, which effectively signals a decrease in student loan rates.
So student loan borrowers are getting a reprieve from the higher interest rates of last year, at least for the 2016-2017 school year. Below is a chart with the new rates by loan type:
Types of student loans available for 2016-2017
|Loan type||Interest rate||Amount you can borrow||Does interest start in school?|
|Direct Subsidized Stafford Loans||3.76% (undergraduate students)||$5,500 – $7,500 annually||NO|
|Direct Unsubsidized Stafford Loans||
3.76% (undergraduate students)
5.31% (graduate students)
$5,500 – $7,500 annually
$20,500 – $40,500 annually
|PLUS loans||6.31%||Up to the cost of attendance minus any other financial aid the child is receiving||Repayment of principal and interest begins 60 days after loan is made. Parents can defer payments while the child is in school.|
|Private student loans||Varies||Varies||Varies|
Student loans starting at 3.76% is welcome news for borrowers. But even with today’s low rates, student loans are a backbreaking burden on many people in this country both young and old. Collectively, our borrowing for education is more than $1 trillion.
Here on Team Clark, we recently unearthed a 1964 student handbook from the University of Georgia. What we saw was amazing. College was free for in-state residents 52 years ago. Out-of-state students had to pay quarterly tuition of a whopping $115!
That really gives you pause to think about the runaway rise of tuition over the years.
Thankfully, there are some ways you can decrease the amount of loans you have to take out and speed up the payoff of existing loans.
Here’s what to do…
1) Learn the golden rules for student loan borrowing
Clark has long talked about some basic rules for student loan borrowing designed to keep you out of harm’s way. You can boil his advice down to the following:
- Borrow only what’s available to you under the federal student loan program.
- Avoid private loans at all costs.
- Never take out more in loans for a four-year degree than you are likely to earn during the first year on the job that degree will get you.
- Start your degree out at a community college for two years before transferring to the four-year school where you ultimately plan to graduate.
2) Look for $10,000 four-year degrees
A number of states are coming up with ways to keep the cost of a college education down. The university system in Texas has been deputized to deliver select standard four-year degrees for a total cost of $10,000. Degree offerings include information technology, business administration, organizational leadership and more. Among the 10 participating Texas colleges are Angelo State University, University of Texas at Arlington and Texas A&M University-Commerce.
Florida has its own way to reduce the cost of a degree. They’ve converted many of their two-year community colleges to offer four-year bachelor degree programs at community college prices. Meanwhile, Georgia is now allowing a small handful of its two-year community colleges to offer four-year degrees.
Massachusetts has yet another idea. If a resident student goes to a Massachusetts community college for two years and maintains a 3.0 GPA or better, that qualifies them for free tuition during junior and senior year at the UMass Lowell or Amherst campuses.
3) On-campus work can lower the cost of an education
If you’re really looking to cut down on the cost of education, consider serving as a resident assistant. RAs are in charge of the safety and wellbeing of students, making sure they were doing well socially, and ultimately ensuring that campus rules aren’t being broken.
Perks of the job typically include free room and board in an on-campus dormitory and a free meal card. That represents a savings of tens of thousands of dollars at some schools. If this sounds like something you’d consider, go to the residence life office at your school and ask about opportunities. You can’t beat living for free on campus and a free meal card!
After you’re out of school
1) See if you qualify for student loan forgiveness
If you have built up student loan debt, there are certain ways to get it forgiven based on your occupation. Federal Stafford, Grad PLUS and consolidation loans in the Direct Loan program are eligible for forgiveness after 10 years of on-time payments. Private loans are not eligible.
Qualifying careers for what is called the Public Service Loan Forgiveness (PSLF) program include any job in government, military service, emergency management, public safety, law enforcement, public health and public education, to name just a few. After 120 nonconsecutive months of on-time payment, the remainder of your student loan balance is forgiven when you’re in this program.
2) Cap what you pay on federal student loans
Even if you don’t qualify for the PSLF program, there is still help for you under a variety of federal programs:
Generally 10 percent of your discretionary income
Generally 10 percent of your discretionary income, but never more than the 10-year Standard Repayment Plan amount
Generally 10 percent of your discretionary income if you’re a new borrower on or after July 1, 2014*, but never more than the 10-year Standard Repayment Plan amount
Generally 15 percent of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount
The lesser of the following:
Unfortunately, none of these programs applies to private student loans!
Fidelity has launched a new student loan repayment tool to help you decide upon the best repayment plan for your individual situation. Check it out here.
3) Get student loan forgiveness for moving to a new city
Americans have historically moved from where they were raised for opportunity. It’s just something in our DNA. Today it’s possible to move to select cities across the country and get your student loan debt forgiven — if you know where to look.
- Nearly 80 counties in Kansas qualify as what are called Rural Opportunity Zones. They will absorb up to $15,000 of your student loan debt and exempt you from state income tax for five years.
- Niagara Falls, NY, has The #LiveNF program that offers nearly $7,000 in loan forgiveness if you’ll either rent and live there full time or buy a home in the community that you occupy as a full-time resident.
- In Detroit, there’s the Challenge Detroit initiative that invites 30 bright young people to live, work and play in the city for one year while working like General Motors, CBS Detroit Radio, the Detroit Lions, the United Way of Southeastern Michigan and Crestmark Bank. While you don’t get student loan forgiveness, you do get paid $36,000 for the year, plus benefits.