As the 2020-2021 academic year quickly approaches, students may be wondering how the coronavirus pandemic is going to affect their college experience. And most will also be considering whether taking out student loans in 2020 is a smart move.
Fortunately, student loan borrowers will benefit from some of the lowest interest rates to date for federal student loans. That means now is a great time to be enrolled in school. But there are still many factors to consider before borrowing for the upcoming academic year.
Here’s what you need to know before taking out student loans in 2020.
- Federal student loan rates for the 2020-2021 academic year
- How do these rates affect undergraduate students?
- Good news for graduate students and parent borrowers
- Factors to think about before borrowing money for college
- Will your university hold in-person classes?
- What degree path have you chosen?
- When’s your graduation date?
- Will your profession be impacted by coronavirus in the future?
- Is taking a gap year worth it?
- Should I take out a student loan this fall?
Federal student loan rates for the 2020-2021 academic year
You should always exhaust all financial options, like scholarships and grants, before borrowing. But if you need to take out student loans to help pay for college, you’ll be able to access historically low federal interest rates this year.
Federal student loan interest rates will be as follows for loans disbursed from July 1, 2020, to June 30, 2021:
|Loan Type||Interest Rate|
How do these rates affect undergraduate students?
Stafford Subsidized loans are designed to allow undergraduates to borrow a modest amount of student loans to cover their undergraduate degrees. And with an interest rate of 2.75%, undergraduates will be borrowing at the lowest level on record.
Undergraduates can also access Stafford Unsubsidized student loans if they need additional funds to pay for college after maxing out their subsidized loans. Unsubsidized loans will have a 4.3% interest rate and will begin accruing interest immediately.
Good news for graduate students and parent borrowers
Stafford Unsubsidized loans are also available to graduate students at this 4.3% rate. This news means graduate students will be able to borrow at some of the lowest interest rates since the mid-2000s.
Most graduate students can take out a maximum of $20,500 per academic year. Students pursuing medical or dental degrees, however, may be able to borrow up to $40,500 per year.
But graduate students attending expensive schools may need more funds than this amount to cover the cost of attendance. If this is the case, they can access Grad PLUS loans with a 5.3% interest rate to fill any financial gaps.
Additionally, parents can borrow student loans in their own name at 5.3% with a Parent PLUS loan.
The rate for these PLUS loans have been over 7% for the past several years, so these new interest rates are significantly lower across the board.
Factors to think about before borrowing money for college
College students are faced with many financial and educational decisions each year under normal circumstances. But with the global coronavirus pandemic going on, people are living in a completely unique situation that’s changing from day to day.
Here are some additional considerations to think about to help you through your decision-making process about borrowing student loans for 2020.
Will your university hold in-person classes?
Schools across the country are considering what their plan of action will be when it comes to holding classes and allowing campus activities. For example, the California State University system has already announced plans for a virtual fall semester. So, some students may alter their plans depending on how their college chooses to move forward.
What degree path have you chosen?
As long as you’ve chosen a degree with long-term job prospects, you should be able to ride out this storm and continue as planned.
When’s your graduation date?
If your graduation date is beyond Spring 2021, then you shouldn’t worry about borrowing at the moment. Only take out what you realistically need, though. Don’t sign up for unnecessary debt just because interest rates are low.
Will your profession be impacted by coronavirus in the future?
Some professions have been impacted more than others during this pandemic. Dental professionals, for example, have experienced the hardest financial hit amongst graduate-level professions. But students in their first couple of years of dental school should be in good shape once they graduate. The coronavirus will likely either be normalized or will no longer be a concern by then, depending on how this health crisis is addressed going forward.
Is taking a gap year worth it?
Unless you were already planning on taking a gap year, there isn’t any additional need to take time off from school, especially considering student loans have record low interest rates and the state of the economy is still up in the air.
It may still be reasonable to take a gap year if you’re a senior who wants to extend your college journey by an extra year to wait out the economy, however. Just make sure you don’t have any compromising health conditions and keep updated on travel restrictions to plan your year out.
Keep in mind that a gap year can be tricky to come back from though. And not graduating can make paying back your student loans even harder.
Even though there may be some additional hurdles to learning this year, completing your degree should remain a top priority. And these newest interest rates should put you in a better position to pay back your student loans after graduation.
Should I take out a student loan this fall?
No one knows exactly what higher education is going to look like post-pandemic. But students will have access to super low interest rates, at least for the upcoming year.
If you’re able to take out federal student loans, then you should avoid going down the private student loan route altogether. It’s going to be hard to find a private lender offering a competitively low interest rate for this upcoming year.
If you need to tap into PLUS loans to cover the cost of attendance, however, then it may still be worth exploring private lenders just in case you can find a lower rate. Otherwise, stick with federal student loans that have lower rates and more flexible repayment plans.
If you need help determining the best financial path for your education, a pre-debt consultation with a student loan expert can provide you with answers to your questions and give you one-on-one guidance based on your specific situation.
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