A breakdown of the new student loan law

Posted on August 16th, 2013

On Wednesday, July 31, 2013, the U.S. House gave final passage to a compromised bill for student loan interest rates. The president signed it into law on August 9, 2013.

Lower student loan interest rates

For new student loans made since July 1, 2013, the new rates for this year will be 3.86% fixed for undergraduate Direct subsidized and unsubsidized loans, 5.41% fixed for Graduate Direct unsubsidized loans and 6.41% fixed for Direct PLUS loans. This is significantly less than borrowers would be paying if a deal hadn’t been brokered.

Check out our Educational Loans document to better understand each loan type under the new student loan law.

Interest rates fixed for life of loan

Even with the changes, it’s key to understand that the annual federal student loan interest rates for the subsidized and unsubsidized loans along with the PLUS Loans are fixed for the life of the loan. The risk is that rates on new loans in subsequent years (2014 -15 academic year and beyond) could climb higher, but the federal loan would have a cap.

Rates could rise for new loans in later years

Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money. But student loan interest rates would be capped and not top 8.25% for undergraduates, 9.5% for graduate students and 10.5% for parents (PLUS). The Congressional Budget Office estimates that rates would not reach those limits in the next 10 years.

Category: Financial Aid

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