After reviewing many proposals and much political volleying, President Obama finally signed the “Bipartisan Student Loan Certainty Act of 2013”, effective July 1. This law newly defines the structure of interest rates for student federal loan programs, tying the interest rates for federal loans to market interest rates. Note that the interest rates have long been structured differently for undergraduate students and graduates students. This continues under the new plan.
Previously, the College Cost Reduction and Access Act of 2007 set lower interest rates on Subsidized Stafford Loans made to undergraduate students during the period from July 1, 2008, through June 30, 2012. Incrementally lower fixed interest rates were set for loans made for each award year, starting with 6.0% in July 2008 and ultimately to the fixed interest rate of 3.4% for the award year, 2012-2013. The interest rate was scheduled to return to the higher 6.8% rate, effective July 1, 2013. The interest rate for undergraduates only eligible for Unsubsidized Stafford loans and for Subsidized and Unsubsidized Stafford loans for graduate students remained at the fixed rate of 6.8% since the award year 2006-2007.
Effective July 1, 2013, federal student loan interest rates will now be determined by the 10-year Treasury note auctioned at the final auction held prior to June 1 each year, plus a margin. The interest rate calculated will vary annually but will be fixed for the life of the loan. A margin of 2.05% will be added to the T-note rate for undergraduate students borrowing through the Stafford Loan program (Subsidized and Unsubsidized), with a fixed rate of 3.86 for 2013-2014. Graduate students borrowing through the Unsubsidized Stafford loan program will have a different margin figure of 3.60%, yielding a fixed rate of 5.41% for 2013-2014. These fixed rates have a cap, 8.25% for undergraduate student borrowers and 9.5% for graduate student borrowers.
PLUS Loan interest rates are also tied to the 10-year Treasury note, with a margin of 4.60% for both parents borrowing for dependent children and for graduate students borrowing through the Graduate PLUS Loan program. The new fixed rates for these programs will be 6.41% for 2013-2014 academic year. The cap on the interest rate will be 10.5%.
In summary, the new law is good news for the 2013-2014 academic year, lowering the interest rates on federal loans for all student borrowers. As interest rates are on the rise, however, we now need to be mindful that federal student loan interest rates, tied to market rates, may increase as well. As always, students can access the National Student Loan Data System (http://www.nslds.ed.gov/nslds_SA/) to review the details of their federal loans, including the interest rates on each loan borrowed.