Search:

Student Loan Borrowers See Large Interest-Rate Cuts on Their Federal Student Loans

Student Loan Borrowers See Large Interest-Rate Cuts on Their Federal Student Loans

Many students, former students, and parents who currently hold federal parent and student loans will be seeing substantially lower interest rates that went into place July 1.

If you have existing federal Stafford student loans or federal PLUS parent loans that were taken out prior to July 1, 2006, your variable interest rates are dropping by 3 percent this year — the largest single rate drop in the history of the student loan program — by virtue of the rate cuts made by the Fed over the last several months.

If you’re an undergraduate taking out new subsidized Stafford student loans after July 1, 2008, you’ll also see your interest rates come down. The interest rate on Stafford student loans disbursed on or after July 1, 2006, was previously fixed at 6.8 percent. But beginning July 1, 2008, as part of the College Cost Reduction and Access Act of 2007, rates on new subsidized Stafford student loans for undergrads will drop to 6 percent.

Over the next four years, interest rates on these subsidized student loans (http://www.nextstudent.com/student-loans/student-loans.asp) will continue to drop for new undergrad borrowers each year on July 1, eventually falling to 3.4 percent in 2011:

Date of First Disbursement Interest Rate
July 1, 2006 – June 30, 2008 6.80%
July 1, 2008 – June 30, 2009 6.00%
July 1, 2009 – June 30, 2010 5.60%
July 1, 2010 – June 30, 2011 4.50%
July 1, 2011 – June 30, 2012 3.40%

On July 1, 2012, the rate on subsidized Stafford student loans for undergrads is set to revert back to 6.8 percent, barring new legislation that keeps the rate reductions in place.

Interest rates on unsubsidized Stafford student loans for undergrads and on graduate Stafford student loans remain fixed at 6.8 percent.

Which Borrowers Benefit, and How?

The size of the interest-rate cuts on your federal college loans (http://www.nextstudent.com/), if any, will vary depending on when your college loan was disbursed and on whether you’re still in school, in your grace period, or in an authorized period of deferment.

Disbursement Date On or After July 1, 1998, but Prior to July 1, 2006

Stafford student loans and PLUS parent loans taken out prior to July 1, 2006, are variable-rate college loans whose interest rate resets each year on July 1. The variable rates this year fell by 3 percent as a result of the string of rate cuts made by the Fed.

 Variable-Rate Stafford Loans (scenario 1): If you’re still in school, in your grace period, or in deferment, your interest rate is dropping from 6.62 percent to 3.61 percent.

 Variable-Rate Stafford Loans (scenario 2): If you’re in forbearance or repayment and haven’t consolidated your federal student loans, your interest rate is dropping from 7.22 percent to 4.21 percent.

 Variable-Rate PLUS Loans: These parent borrowers will see their interest rates drop from 8.02 percent to 5.01 percent.

Disbursement Date On or After July 1, 2008

Rates on new subsidized Stafford student loans for undergrads are coming down this year as a result of the CCRAA legislation. Rates on other college loans (http://www.nextstudent.com/private-loans/private-loans.asp) remain the same.

 Fixed-Rate Undergraduate Subsidized Stafford Loans: The interest rate on these college loans dropped from 6.8 percent to 6.0 percent.

 Fixed-Rate Undergraduate Unsubsidized Stafford Loans: The interest rate on these college loans remains fixed at 6.8 percent.

 Fixed-Rate Graduate Stafford Loans (Subsidized and Unsubsidized): The interest rate on these student loans remains fixed at 6.8 percent

 Fixed-Rate PLUS Loans: The interest rate on these student loans for parent borrowers remains fixed at 8.5 percent.

If you’re not sure what type of parent or student loans you’ve taken out or whether your undergrad financial aid package for this year includes subsidized Stafford student loans eligible for the new lower interest rate, contact your student loan provider or your school’s financial aid office.

Learn more about College Loans and Private Student Loans (http://www.nextstudent.com/).