You may have heard in the news this week that a bill was passed to change federal student loan interest rates. Prior to July 1, 2013, the Federal Stafford Loan rate was set at 3.4% fixed for subsidized loans (loans under which the government pays the interest while the student is in school) and 6.8% for unsubsidized loans. PLUS Loans were set at a fixed rate of 7.9%. On July 1, the unsubsidized Stafford rate of 3.4% was set to increase to 6.8% if Congress did not act.
July 1 came and went and Congress was unable to reach an agreement to keep the rates at 3.4%. Meanwhile, many new bills were introduced that would change the way interest rates are set for Stafford loans and PLUS loans. This week, one of those bills (HR 1911) was passed by both the House and Senate. It's now waiting for the President's signature and is likely to be signed.
The new rates on Stafford and PLUS loans will be market based rates and retroactive effective July 1, 2013. Rates will be set annually based on the 10-year Treasury note plus a markup and will be fixed for the life of the loan. For undergraduate Stafford loans, both subsidized and unsubsidized, the markup will be 2.05%. For graduate Stafford loans, the markup is 3.6% and for PLUS loans, it's 4.6%. Interest rates would be capped at 8.25% for undergraduate students, 9.5%t for graduate students, and 10.5% for PLUS borrowers.
So what does this mean for students? The good news is that it means lower rates on Stafford this year. The bad news is that as the economy improves, rates are likely to go higher.