Ready for a rate cut? One’s coming in July!

New and continuing students, I’m pleased to inform you that the interest rate for the subsidized federal Stafford loan will be cut on July 1st from 5.6% to 4.5%. Even better, it is remaining a fixed interest rate loan, meaning the rate will never change after you accept the loan.

Curious to how that affects you? Say you’re a sophomore, come from a low income family and take out the maximum amount of subsidized Stafford loans you can: this equates to about $2,000. The default repayment period on Stafford loans is 10 years (you can go up to 25, but we’ll stick with this for example.)

Here’s the math:

Old rate: $2,000 at 5.6% interest over 10 years = $2,616.72
New rate: $2,000 at 4.5% interest over 10 years = $2,487.17

This equates to a savings of $129.55 or about 5% less.

If we plot the same calculations out over a 25-year repayment period…

Old rate: $2,000 at 5.6% interest over 25 years = $3,720
New rate: $2,000 at 4.5% interest over 25 years = $3,336

This equates to a savings of $384 or about 10% less.

As you can see, it doesn’t sound like much, but it makes a big impact in the long run. Not to mention, by the time you graduate, you’ll have somewhere in the realm of 3-4 of these loans. Quadruple the savings above and the deal becomes bigger and bigger.

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