When 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.
But there's good news on the horizon: education loan relief (at least in the short term) is on the way. President Obama just signed 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. This is great news for both students on campus this fall - and their parents - who have been anticipating borrowing at twice the interest rate of last year's loans.
As a result, going forward, federal education loan rates will now be set annually at a rate equal to the June 1, 10-year treasury note rate plus a point spread determined by the type of borrower. Specifically:
College Coach strives to keep your employees apprised of all relevant news in the world of college admissions and finance. Whatever tomorrow's interest rates may bring, College Coach's finance experts will be there to guide your employees through the college financing process so that they can bear college costs, remain fully engaged employees at work, and keep themselves - and your organization - in the best financial position possible.
But there's good news on the horizon: education loan relief (at least in the short term) is on the way. President Obama just signed 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. This is great news for both students on campus this fall - and their parents - who have been anticipating borrowing at twice the interest rate of last year's loans.
New student loan bill rate details
Following the July 1 deadline, Congress continued to negotiate and has now passed a compromise bill that will lower rates for the coming year by tying Direct and PLUS Loan interest to financial market rates. Rates will be retroactively applied to all borrowers back to July 1, 2013.As a result, going forward, federal education loan rates will now be set annually at a rate equal to the June 1, 10-year treasury note rate plus a point spread determined by the type of borrower. Specifically:
- 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).
Benefits for today's borrowers
Tying student loan rates to financial markets is unquestionably a boon to the class of 2013 since each of the above rates is lower than fixed interest rates previously offered. But the legislation may not be as beneficial to borrowers in future years since, as the economy improves and interest rates rise, so too will student loan rates. Still, these market-based rates will minimize the cost to the federal government, while caps will ensure that an excessive debt burden will not be borne by education loan borrowers in high-interest environments.College Coach strives to keep your employees apprised of all relevant news in the world of college admissions and finance. Whatever tomorrow's interest rates may bring, College Coach's finance experts will be there to guide your employees through the college financing process so that they can bear college costs, remain fully engaged employees at work, and keep themselves - and your organization - in the best financial position possible.