trying to figure out if its worth it to take out the unsubsidized federal loan my freshman was offered this year. So far, we haven’t. but if interest rates are 0% – that could be helpful.
SO - does anyone know how long that interest rate of 0% lasts? is it for the entirety of the loan, or just for this year that it has 0% interest? thanks
AFAIK there are no variable rates for Federal Student Loans. The interest rate signed for is good for the length of the loan. Of course there is a new agreement each year which can have different rates. But I don’t know where you are getting 0%.
https://studentaid.gov/understand-aid/types/loans/interest-rates
parents from my DS’s school are mentioning it . . . . so I looked at the studentaid.gov site and here’s what it says:
"Interest is being temporarily set at 0% on federal student loans. Which loans does the 0% rate apply to?
From March 13, 2020, through Dec. 31, 2020, the interest rate is 0% on the following types of federal student loans, but only if they are loans owned by ED:
Defaulted and nondefaulted Direct Loans
Defaulted and nondefaulted FFEL Program loans
Defaulted and nondefaulted Federal Perkins Loans"
guess I’m just trying to figure out if that 0% goes for the next 3.5 years.
@Erin_s_Dad – I appreciate your thoughts. New to loans here. thanks
That portion of the web site is not very clear, but the way I read it is only during that time frame. I believe it’s a follow-on for the Coronavirus cessation of payments.
Perhaps @kelsmom can provide her view.
Legislation related to the CARES Act put a pause on interest accrual on certain federal loans through December 31st. That doesn’t mean that the interest rate is 0; rather, interest is simply on pause for a period of time. The effect is 0 interest during this time period.
At this time, there is no extension on the interest pause. I don’t know if an extension will end up being part of the proposed second stimulus package.
You can read about the interest pause here: https://studentaid.gov/announcements-events/coronavirus.
I would not recommend borrowing to get this short interest pause.
ok. thanks.
kiddo #2 has no loans right now; but money’s tight with 2 in college. If it was 0% for length of loan, we we’d do it! but, looks like it’s just seasonal.
appreciate your thoughts you guys
If the loan is a subsidized loan, no interest accrues during school or grace period, so you could essentially treat that as an interest-free loan if you were able to pay it off before the grace period ends. Unsubsidized loans would begin accruing interest as soon as the current interest pause ends.
DD2 took an unsubsidized loan and DW and I paid the interest while she was in school so she could start off with no interest when she graduated.
While loans are not presently accruing interest, the subsidized and unsubsidized loans that my daughter had disbursed in September show a rate in nelnet of 2.75% once the pause expires. In contrast, loans from 2018 are 5.05%.
Federal student loan rates are set annually in May for the upcoming financial aid year (which begins July 1). The rates are tied to 10 year Treasury rates (which went way down this year).
Update: Interest/payment pause extended through the end of January.
Note, my daughter’s Perkins loan was NOT paused during this time. As I understand it, it is ‘owned’ by her college and guaranteed by the government.
That is correct. While Perkins loans are federal loans, they are not federally held loans. There are other exceptions, so it is extremely important that borrowers verify their eligibility with their loan servicer.
P.S. The link I cited is now “down.” I assume it will be back up soon.