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A Guide to Student Loan Interest Rates in 2019

January 15, 2019 · 4 minute read

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A Guide to Student Loan Interest Rates in 2019

Student loans and interest rates go hand in hand. Millions of Americans borrow student loans every year to pay for educational pursuits. Approximately 44 million borrowers currently hold nearly $1.5 trillion in student loan debt .

What does 2019 have in store for student loan interest rates? That depends on the type of student loan. Federal student loan interest rates are set differently than private student loan interest rates.

Here’s what you should know about what could happen to federal and private student loan interest rates in 2019.

Federal Student Loan Interest Rates

Interest rates on federal student loans are set by the government. Each spring, the government sets interest rates on federal loans for the coming year based on the 10-year Treasury note. Last May, the rates were set for the 2018 to 2019 school year and rose for the second year in a row. The new interest rates took effect on July 1, 2018.

Undergraduate students borrowing Direct Subsidized Loans and Direct Unsubsidized Loans will pay a 5.05% interest rate, up from 4.45% in the 2017 to 2018 school year.

Graduate or professional students borrowing Direct Unsubsidized Loans will pay an interest rate of 6.6%, up from 6% in the 2017 to 2018 school year. Parents and graduate or professional students borrowing Direct PLUS Loans will pay 7.6%, up from 7% in the 2017 to 2018 school year.

Interest rates on federal student loans are fixed for the life of the loan. That means that if you borrowed a Direct Subsidized Loan for the 2017 to 2018 school year, and your interest rate was 4.45%, that interest rate is locked in at 4.45% for the life of that loan. But, if you need to borrow another Direct Subsidized Loan to pay for the 2018 to 2019 school year, your new loan will be disbursed with the 5.05% interest rate.

Over the past 12 years, interest rates on federal student loans have fluctuated from anywhere between 3.4% to 7.90%, depending on the type of loan. Rates have been rising since 2016 . Federal student loan interest rates for the 2019 to 2020 school year will be set in the spring of 2019.

Private Student Loan Interest Rates

Unlike federal student loans, interest rates for private student loans are set based on economic factors in addition to your credit history, earning potential, and other personal financial factors. If you borrowed a private student loan, you might have applied with a cosigner to secure a more competitive interest rate.

Because most college students don’t have much credit history or employment history, interest rates on private student loans can be higher than those on federal student loans.

While federal student loans have a fixed interest rate, private student loans can have either a fixed or variable interest rate. Borrowing a variable rate loan means that the interest rate can change periodically.

The frequency of changes in the interest rate will depend on the terms of the loan; typically, private lenders adjust the interest on variable-rate loans monthly, quarterly, or annually. Interest rates on private student loans are typically tied to the London Interbank Offered Rate (LIBOR) or the 10-year Treasury yield.

So as the LIBOR changes, interest rates on variable rate student loans change as well. Typically, lenders will add a margin to the LIBOR, which is determined based on your credit score (and, the credit score of your co-signer if applicable).

After years of record low interest rates, the Federal Reserve has been gradually increasing interest rates—which can have serious implications for student loans, especially if you borrowed a private student loan with a variable interest rate.

Forecasts predict that interest rates will continue to rise in 2019 .

Can You Lock in a New Interest Rate in 2019?

If you have a variable rate student loan, you may be worried about interest rates potentially rising in 2019. If that’s the case, you don’t necessarily have to stress about possible interest rate hikes. There are options available that can allow you to control your interest rate. One such option is student loan refinancing.

When you refinance your student loans, you take out a new loan (often with a new lender). The new loan effectively pays off your existing loans, and gives you new terms, including a new interest rate. Lenders, like SoFi, will review financial factors like your credit score, earning potential, and employment history to determine your new interest rate.

When you refinance, you’re able to choose between a fixed or variable rate loan, so if you’re worried about rising interest rates, you can lock in a new (hopefully lower) fixed interest rate.

You should also have the opportunity to set a new repayment plan, either extending or shortening the term of the loan. If you extend your student loan repayment term, you’ll likely have lower monthly payments, but will pay more in interest over the life of the loan. Shortening your repayment plan typically has the opposite effect. You may owe more each month, but will most likely spend less on interest over the life of the loan.

Federal student loans can be refinanced, too. Refinancing a federal student loan with a private lender means you’ll no longer be eligible for federal programs like income-driven repayment or Public Service Loan Forgiveness. If you are currently taking advantage of one of the federal repayment protections, refinancing may not be the best alternative.

To see how much refinancing your student loans could impact your repayment, take a look at our student loan refinance calculator, where you can compare your current loan to a SoFi refinanced student loan.

If you refinance your student loans with SoFi, there are no origination fees or prepayment penalties. The application process can be completed online, and you can find out if you pre-qualify for a loan, and at what interest rate, in just a few minutes.

Ready to take control of your student loans in 2019? See how refinancing with SoFi can help.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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