New Student Loan Bill Passes
Education loan relief is on the way for today’s college students and their parents, at least in the short-term. Congress just passed, and President Obama is expected to sign into law, a compromise bill that keeps student loan interest rates low for today’s crop of college students, while minimizing the cost to the federal government in the long run. This is great news for students on campus this fall, who have been anticipating borrowing at twice the interest rate of last year’s loans.
When prior student loan regulation expired on July 1 and Congress failed to act, the interest rate on the Subsidized Direct Loan doubled from a fixed 3.4% to 6.8% for all future borrowers. Congress continued to negotiate after the July 1 deadline, however, and have now passed a compromise bill that will tie Direct and PLUS Loan interest to financial market rates, and will be retroactively applied to all borrowers since July 1, 2013.
New Student Loan Bill Rate Details
Moving forward, federal education loan rates will be set annually at a rate equal to the high yield of the 10-year treasury note sold at the final auction held prior to June 1 plus a particular point spread determined by the type of borrower:
- Undergraduate student Direct Subsidized and Unsubsidized Loan borrowers will pay a rate equal to the 10-year T-Note + 2.05%, capped at 8.25%.
- Graduate student Direct Unsubsidized Loan borrowers will pay a rate equal to the 10-year T-Note + 3.6%, capped at 9.5%.
- Parent Direct PLUS Loan borrowers will pay a rate equal to the 10-year T-Note + 4.6%, capped at 10.5%.
- 3.86% for undergraduate students (compared to 3.4% for Subsidized Loans and 6.8% for Unsubsidized Loans in 2012 – 2013)
- 5.41% for graduate students (compared to 6.8% in 2012 – 2013)
- 6.41% for parents (compared to 7.9% in 2012 – 2013).