The COVID-19 crisis left many Americans in physical or financial trouble in 2020. As a result, student loan interest rates fell to historic lows, largely due to the crisis Federal Reserve cut interest rates as an attempt to stimulate the economy.
“In the marketplace, interest rates rise when the economy is stronger and fall when the economy is weaker,” said Mark Hamrick, chief executive of the Washington Bureau and chief economist at Bankrate. Given the economic crisis the US was experiencing in 2020, it makes sense for interest rates to fall to what they were.
Even with the launch of a COVID-19 vaccine, student loan interest rates are unlikely to rise much in 2021 as the economy is likely still in recovery mode. Federal student loan rates for the 2021-22 school year are expected to remain stable, and private student loan rates should follow.
Interest rates should stay stable in 2021
The low student loan rates in 2020 should continue to stabilize. “I assume that interest rates will remain stable, also because the Federal Reserve Board has announced that it will keep interest rates low until 2023“Says Mark Kantrowitz, student loan expert. The The federal rate sets the bar for federal student loan rates, but it also affects the rates that private lenders offer.
Federal student loan interest rates were paid between July 1, 2020 and June 30, 2021. are as follows:
- Directly subsidized and unsubsidized student loans: 2.75 percent.
- Direct unsubsidized graduate loans: 4.3 percent.
- Direct PLUS loan for parents and graduates: 5.3 percent.
Interest rates on private student loans are currently variable by 1 to 13 percent and fixed by 4 to 14 percent.
A COVID-19 vaccine is unlikely to cause major rate changes
The coronavirus vaccine is unlikely to cause dramatic spikes in rates, but there is potential for a slight shift. If the vaccines prove ineffective in ending the pandemic, interest rates will come down, says Kantrowitz. On the other hand, “If the economy accelerates quickly and everything (not just the stock market) returns to prepandemic norms, there may be an increase, but it should be very small, a fraction of a percent.”
Student loan borrowers may want to switch focus, Hamrick says. Those who currently have student loans or are expecting to take out student loans may want to turn their attention away from the expected interest rates and focus on managing the finances. “I would focus more on managing personal finances more fully by controlling expenses, paying off debts, and paying off student loan debt,” Hamrick says of the pandemic. “
Biden’s policies may change payments
Since the Federal Reserve has rates set by 2023, your rates are unlikely to change significantly during a Biden administration. However, there is a chance that your student loan payments could change in 2021 under the management of Biden.
Biden suggested instant student loan forgiveness for federal student borrowers as well free and reduced tuition fees, However, Hamrick advises federal loan borrowers to be careful with their assumptions. “It seems to me that the President-Elect [administration] take a cautious stance on what they are going to do … The reality is that the policies that seem most likely to be the most likely are minimal regarding the actual student loan debt levels out there. “
Private student loans are unlikely to have much of an impact
As private student loans adjust interest rates regularly, they are more responsive to economic changes, says Kantrowitz. With the Federal Reserve keeping the key rate low, private student loans shouldn’t change much in the coming year.
While interest rates aren’t expected to change too drastically, it’s always a good idea to check with your lender about possible changes to your COVID-19 hardship relief.
This is a prime time for refinancing
With the Federal Forbearance Program expected to expire at the end of January and interest rates expected to remain low, Refinancing This could be a smart move to make money in 2021. Refinancing at a low fixed rate can save you money in the long run, especially if you took out your loan when the interest rates were high.
Keep in mind that refinancing your federal student loans will mean that you will no longer be able to benefit from income-related repayment plans, student loan allocation, and additional federal indulgence.