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Student loan rates are dropping. Here's what you need to know

Key Points
  • Interest rates on federal student loans will go down next academic year.
  • The rate on new undergraduate Stafford loans will be 4.5% for the 2019-2020 academic year.
  • Rates on Plus loans for graduate students and parents will fall to 7%, down from 7.6% last year.
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The interest rates on federal student loans will go down next academic year.

The government sets the annual rates on those loans once a year, based on the 10-year Treasury note, which has also been on the decline.

The interest rate on new undergraduate Stafford loans will be 4.5% for the 2019-2020 academic year, down from 5% last year. For graduate students, Stafford loans will come with a 6% interest rate, compared with 6.6% now. Rates on Plus loans for graduate students and parents will fall to 7%, down from 7.6% last year.

Undergraduate students can borrow between $5,500 and $12,500 a year, depending on what year they're in and whether they're dependents or independent. Graduate students can typically borrow more.

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Who is affected?

All federal education loans issued after July 1, 2019, will be subject to the new rates.

Don't worry about loans you've taken out for previous academic years: Federal student loan rates are fixed, meaning the rates on those existing loans won't change.

The rate changes apply only to federal student loans. Private loans come with their own rates.

How can I calculate what I'll wind up owing?

Student debt expert Mark Kantrowitz's website, PrivateStudentLoans.Guru, features a calculator that you can plug your loan details into and learn what kind of bill you'll face post-graduation.

Credible.com also has a handy loan cruncher, which will break down how much you'll owe in principle and interest.

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How much should I borrow?

Students shouldn't take out more than they expect to earn in their first year of employment, Kantrowitz said. The Georgetown University Center on Education and the Workforce has a pretty thorough breakdown of salaries by major.

"Borrowers should assume the lower end of the income range," Kantrowitz said. "That way, they are less likely to over-borrow for their field of study."

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