You will pay slightly less interest on the life of your federal student loan if you’re taking one out for the upcoming school year than if you’d borrowed for last year.

Interest rates for 2016-17 kick in on July 1, and they’re lower than the 2015-16 rates.

Congress sets federal student loan rates each year based on the 10-year Treasury note. The rates are fixed for borrowers — so if you take out a federal student loan this year, the interest rate will stay the same throughout the life of your loan. To apply for federal student loans, submit the Free Application for Federal Student Aid, also known as the FAFSA.

»More: The complete guide to student loan interest rates

Federal student loan interest rates 2016-17

Student loan type Interest rate Origination fee*
Subsidized and unsubsidized direct (undergraduate students) 3.76% 1.07%
Unsubsidized direct(graduate students) 5.31% 1.07%
Grad PLUS, Parent PLUS 6.31% 4.27%

How federal student loan rates compare to private student loan rates

The new federal student loan interest rate for undergraduate direct loans, which is the most common type of federal loan, is 3.76%. The direct loan rate for graduate students is 5.31%, while the rate for PLUS loans — which are for graduate students and parents of undergraduate students — is 6.31%. For comparison, the 2015-16 rates were 4.29% for undergraduate direct loans, 5.84% for graduate direct loans and 6.84% for PLUS loans.

In general, you’ll get a lower interest rate on a federal student loan than on a private student loan. And federal student loans have benefits — such as income-driven repayment plans — that will matter to you once you’ve graduated and are paying back your debt, because they can lower your monthly payment. Private student loans have fewer such perks.

But if you or a co-signer have excellent credit, you could get a lower interest rate through a private lender. Unlike the federal government, which offers one interest rate each year for each loan type, private lenders offer a range of interest rates — anywhere from a 2.20% annual percentage rate for variable-rate loans to a 12.99% APR for fixed-rate loans. Borrowers with good credit can qualify for lower rates, but people with a not-so-good credit history could face higher rates. Most private lenders don’t charge origination fees.

There are dozens of lenders offering private student loans. If you decide to go that route — and we would suggest it only after you exhaust your federal options — compare your private student loan options before you choose one.



Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @teddynykiel.

The article Lower Federal Student Loan Rates Kick In For 2016-17 originally appeared on NerdWallet.