On August 9th, President Obama signed the Bipartisan Student Loan Certainty Act of 2013 into law. As a result, borrowers of direct student loans will continue to enjoy lower interest rates in the near term. Interest rates for Direct Student Loans are fixed for the life of the loan. Student loans borrowers will have rates established in June and will be effective from July 1 to June 30th. Interest rates on Direct Student Loans are now tied to the financial markets. Specifically, they are tied to high yield of the 10 year Treasury note on the last auction prior to June 1st of each year plus a margin depending on the loan program.
For the 2013-2014 school year (July 1, 2013 through June 30, 2014) the rates are as follows:
Direct Subsidized Student Loans: 3.86% (undergraduates students)
Direct Unsubsidized Student Loans: 3.86% (undergraduate students)
Direct Unsubsidized Student Loans: 5.41% (graduate or professional students)
Direct PLUS Loans: 6.41% (parents and graduate or professional students)
Direct Subsidized and Unsubsidized Student Loans also have a 1.051% fee that is deducted from the principal amount before being disbursed to the borrower’s school. The fee for Direct PLUS Loans is 4.204%.
If the economy improves as expected and the government’s cost of capital increases, those costs will be passed on to borrowers in the form of rate increases. While rates may increase, each type of Direct Student Loan has a set maximum. For undergraduates borrowing a Direct Subsidized or Unsubsidized Student Loan, the rate cannot exceed 8.25%. Graduate students borrowing a Direct Unsubsidized Student Loan, the rate will not be greater than 9.5%. Parent and graduate or professional students borrowing a Direct PLUS Loan have a maximum rate of 10.5%