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These percentages are interest-rate cushions set by Congress.
Whether federal student loan rates rise or fall depend on how the yield on the 10-year Treasury note compares to the yield from the same time last year.
When it falls, student loan interest rates fall, too.
Remember, even though rates can reset each year, the rate you receive when your loan is first disbursed remains your rate for the life of the loan.
Federal student loan rates are tied to a 10-year Treasury note — basically, this is a loan investors can make to Uncle Sam.
That’s why even a slightly lower interest rate can save you a lot of money in the long run.
Interest rates on undergraduate Direct Loans recently fell from 4.29% for the 2015-2016 school year to 3.76% for the 2016-2017 school year.
The interest rate on your loan is the percentage of the principal, or overall loan amount, that you’ll have to pay back to the lender on top of the principal.