New federal loans for students, parents have lower interest rates

PITTSBURGH—Although the cost of attending college continues to go up, new federal loans for undergraduates, graduate students and parents have fallen.

For example, the rate on federal loans for undergraduate students fell to 3.76 percent, from 4.29 percent last year.

In another move by the federal government to make college more affordable, the maximum Pell grant has been increased. Unlike student loans, Pell grants do not have to be repaid.

The maximum Pell grant was adjusted for inflation to $5,815 as of July 1, up from $5,775 last year. Pell grants help nearly 8 million lower income students pay for college and limit how much they need to borrow.

Student debt for college graduates is at an all-time high of $1.3 trillion, spread out among about 43 million borrowers, according to Student Loan Hero, an Austin, Texas-based company that works with borrowers to pay off and refinance their student loan debt. The company estimates the average Class of 2016 graduate has $37,172 in student loan debt, an increase of 6 percent from last year.

Interest rates on federal student loans are set in May of each year based on the rate paid by the 10-year U.S. Treasury note.

A rate reduction from 4.29 percent to 3.76 percent for a 10-year term amounts to a savings of $2.52 a month for every $10,000 borrowed. Over the 10-year life of the loan, the savings will total $302.50 for every $10,000 borrowed.