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The interest rate on Direct Subsidized Loans increased from 3.4% to 6.8% effective July 1, 2013.

This rate is the same rate as is applicable to the Direct Unsubsidized Loans. This increase was long-anticipated as it is the way that the law was originally written that authorized this change. The current interest rate structure that resulted in the temporary 3.4% rate was authorized on September 27, 2007 as part of the College Cost Reduction and Access Act (CCRAA). Before this law was enacted, all Direct Loans—Subsidized and Unsubsidized—were at the 6.8% interest rate. The CCRAA allowed for the gradual, but temporary, decrease in the Subsidized Direct Loan interest rate over the succeeding years until it eventually reached the 3.4% rate that was applicable in the 2011-2012 award year. As of July 1, 2012, the interest rate on the Subsidized Direct Loans was to return to the prior rate of 6.8% as written in the CCRAA back in 2007. Congress, of course, delayed that increase a year ago to extend the 3.4% interest rate applicable to Subsidized Direct Loans until June 30, 2013. This resulted in the automatic increase back to the former 6.8% rate on July 1, 2013 as there was no change to what the law required.

The question has been raised as to whether there will yet be any changes to this rate. At this point, one would only be speculating to say if there will be an extension of the prior 3.4% Subsidized Direct Loan rate. There is still talk of a possibility of a change that would be retroactive to loans disbursed on or after July 1, 2013. At least one Department of Education official has publicly speculated, but not with 100% certainty, that there will be a resolution that will change the interest rate, which may occur sometime in the next few months with a retroactive effective date, even if it occurs after August. This is strictly speculation at this point. Others involved in the discussions on the interest rate are more pessimistic. It is also important to note that any change may not be one that reverts back to the 3.4% interest rate for Subsidized Direct Loans, but may in fact be a total restructuring of all Direct Loan interest rates and how they are calculated. The financial aid community will have to stay tuned to see what actually develops long term, but as of now, all Direct Subsidized and Unsubsidized Loans are at the 6.8% interest rate for loans disbursed on or after July 1, 2013.

(EA07032013; NTN07162013)

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