Cheaper college loans, for now

  @Money September 26, 2013: 4:12 PM ET
Is the cost of college crippling?
(Money Magazine)

The burden of borrowing for higher ed just got a little lighter-- for now. Capping months of partisan debate, Congress in August changed the formula behind federal education loan interest rates.

The rates for loans taken out for any given school year will now be based on the yield of the 10-year Treasury note the prior summer.

The upshot: This year the APR on federal student loans will be 4% -- slightly higher than the previous rate for subsidized borrowers (who don't run up interest charges while in school), but a big savings on unsubsidized loans, which had been set at 6.9%.

Rates on new parent PLUS loans will be 7.4%, after fees, down from 8.8%. Loan costs for future borrowers, though, could rise again with the market.

Related: Some 2-year degrees pay off better than BAs

Students should stick with federal loans, but parents with good credit can find lower rates elsewhere. SunTrust, for one, recently offered fixed APRs as low as 4.5% on five-year education loans. To top of page

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How much you'll save
The total interest you'll pay over 10 years will vary by the school year you borrowed for:
'12-'13 '13-'14
$5,500 unsubsidized federal student loan $2,129 $1,182
$10,000 parent PLUS loan $5,072 $4,182
Notes: $5,500 is the maximum federal loan for freshmen; $10,000 is average parent PLUS loan.
Sources: U.S. Department of Education, House Committee on Education and the Workforce
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