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Congress reaches agreement on a new interest rate structure for Federal Direct Student Loans

This news flash is making the headlines across the country. After months of political back and forth, both houses of Congress have come to a resolution on the student loan interest rate debate. Late yesterday the House passed the Senate-amended version of House Bill, HR 1911. It now awaits the president’s signature, which is anticipated to happen without delay. The new interest rate structure will be applied retroactively to all Federal Direct Loans with a first disbursement on or after July 1, 2013.

The current version of the bill awaiting signature of the president puts the interest rate structure to be set using the following formulas:

  • Undergraduate Stafford loans (subsidized and unsubsidized): 10-year Treasury Note plus 2.05 percent, capped at 8.25 percent.
  • Graduate Stafford loans: 10-year Treasury Note plus 3.6 percent, capped at 9.5 percent
  • PLUS loans (graduate and parent): 10-year Treasury Note plus 4.6 percent, capped at 10.5 percent.

It is important to note that there is no longer a difference in the interest rates for undergraduate subsidized and unsubsidized Direct Loans as there has been since 2006. The interest rate for both subsidized and unsubsidized loans for undergraduate borrowers will be the same.

Current forecasts for the 10-year Treasury Note are highlighted below. These are the rates that were used in determining the cost and budget savings over a 10-year period. It is good to keep in mind that, as anyone knows, these forecasts for future years’ Treasury Note yields depend upon numerous factors in the economy and may vary from what has currently been forecast (other than for 2013 which is now actual and will set the 2013-2014 interest rates). The current forecasts for “the high yield of the 10-year Treasury Note auctioned at the final auction held prior to” June 1 preceding the July 1 start date of the new award year are:

2013 – 1.81 percent
2014 – 2.6 percent
2015 – 3.45 percent
2016 – 4.2 percent
2017 – 4.95 percent
2018 through 2023 – 5.2 percent

With these forecasts, we can see that the following interest rates will be in effect for 2013-2014:

Undergraduate Direct Loans (Subsidized and Unsubsidized)
1.81 percent Treasury Note yield + 2.05 percent = 3.86%

Graduate Direct Loans (Subsidized and Unsubsidized)
1.81 percent Treasury Note yield + 3.6 percent = 5.41%

PLUS Loans (graduate and parent borrowers)
1.81 percent Treasury Note yield + 4.6 percent = 6.41%

Keep in mind that the president must sign this bill. But, since both the House and Senate have passed the amended HR 1911, and the bill is very similar to what the president has also promoted, it is anticipated that he will sign the bill into law without delay (and, it could happen today). However, until such time, the above rates are not official. But, it is anticipated that they will be very soon!

From an operational standpoint, the Department of Education (ED) has stated at a recent conference that, should an interest rate change be enacted with a retroactive application of this interest rate to all loans with a first disbursement on or after July 1, 2013, simply a change in the interest rate will not require schools to do any reprocessing. Also, new Master Promissory Notes (MPNs) will not be required since the MPNs do not list the interest rate anywhere. However, we will keep you informed of any late-breaking guidance from ED.

If you have any questions regarding this information, please contact your Customer Service Representatives via

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