Interest Rates - Federal Student Loans

On March 25, 2010, the U.S. House of Representatives  and the U.S. Senate passed the The Health Care and Education  Affordability Reconciliation Act of 2010 ("HCEARA"-H.R. 4872) . This bill makes major changes in several federal student aid programs AND mandates that, effective July 1, 2010, all federal student loans (Stafford, PLUS, and Grad PLUS)  will be originated through the Federal Direct Loan Program.  The Family Federal Education Loan Program, which permitted private lenders to originate these loans, is eliminated effective June 30, 2010.

President Obama signed the bill into law on March 30, 2010.

The Deficit Reduction Act of 2005

On February 8, 2006, President Bush signed The Deficit Reduction Act of 2005 into law. This legislation makes a number of changes in the federal student loan programs including:

  • For new Stafford student loans disbursed July 1, 2006 and later, the interest rate will be set at a FIXED RATE of 6.8 %;
  • For Federal Direct PLUS Loans disbursed on or after July 1, 2006, the interest rate is fixed at 7.90
  • Interest rates on existing loans are not affected and will remain the same

President Bush signed The College Cost Reduction and Access Act (H.R. 2669) into law on Sept. 27, 2007. The bill gradually cuts interest rates on subsidized Stafford loans for undergraduate students in between the 2008-2009  and the 2011-2012 academic years. If Congress fails to act, the interest rate will jump back to a fixed rate of 6.8% for all students effective July 1, 2012.

The Ensuring Continued Access to Student Loans Act of 2008 ("ECASLA") was originally approved by the House of Representatives on April 17, 2008. President Bush signed it into law on May 7, 2008.& The legislation set new undergraduate Stafford loan limits effective July 1, 2008.

Federal PLUS  / Grad PLUS  Interest Rates

PLUS loans are available to parents of dependent undergraduate students. Families do not need to complete the FAFSA to apply for a PLUS loan. (Grad PLUS Loans are available to Graduate and Professional Students starting on July 1, 2006).

Origination Fees and Rebates for 2011-2012

  • For all Direct Subsidized Loans and Direct Unsubsidized Loans for which the earliest disbursement date is on or after July 1, 2011, the origination fee is 1.0 percent.
  • For all Direct Subsidized Loans and Direct Unsubsidized Loans for which the earliest disbursement date is on or after July 1, 2011, the up-front interest rebate is  0.5 percent.
  • Note: The Direct PLUS Loan origination fee is not changing and will remain at 4.0 percent for Direct PLUS Loans made to both parent borrowers and graduate/professional student borrowers.  In addition, the up-front interest rebate amount is not changing and will remain at 1.5 percent for all Direct PLUS Loans.

Understanding the Rate Changes

 U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), takes on powerful interests on behalf of the American public, working to win concrete results for our health and our well-being. They released An Analysis of the College Cost Reduction and Access Act of 2007 Interest Rate Reduction in June 2008.

 
 

Updated January 25, 2012