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New Interest Rates for Federal Loans

Release date: August 16, 2013

New legislation, which was passed by Congress on ­­­July 31 and signed into law by President Obama on August 9, 2013, sets interest rates on federal loans for student and parent borrowers. The Student Loan Certainty Act of 2013 ties both student and parent loan interest rates to the market.

Rather than Congress annually determining the rate, the act requires that for each academic year, all newly issued student loans and parent and graduate PLUS loans will be set to an “index rate,” plus a statutorily defined “add-on” rate to offset loan-servicing costs. The add-on rate varies depending on the type of loan and the student’s grade level. The new index rate is set each year to the "high yield of the 10-year Treasury note."

Because student loan rates will be linked to market rates, students will have a more accurate portrait of the cost of education when they are making decisions about their futures. The resulting interest rates for loans taken out this year, after July 1, 2013, will be:

  • Subsidized and unsubsidized loans for undergraduate students: 3.86 percent
  • Unsubsidized loans for graduate students: 5.41 percent
  • PLUS loans for parent or graduate students: 6.41 percent

These new rates are significantly lower than they would have been if Congress had not reached a deal. Rates after July 1, 2013, would have been 6.8 percent for student loans and 7.9 percent for parent or graduate PLUS loans.

The interest rates will be fixed over the life of the loan to provide borrowers with certainty to plan for the future. However, these rates will change for new loans each year. The new bill imposes a cap to ensure interest rates never exceed 8.25 percent for undergraduate students, 9.5 percent for graduate students, and 10.5 percent for parent or graduate PLUS borrowers.

In all, nearly 18 million loans will be covered by the legislation, totaling about $106 billion in federal funding this fall.

Federal Direct Student Loans 2013-2014 Interest Rates
Effective for Loans With a First Disbursement on or After July 1, 2013

Loan Type

Student Grade Level

Cohort

Index Rate

Add-On

2013-2014 Fixed Interest Rate

Interest Rate Cap

First Disbursed On/After

First Disbursed Before

10-Year Treasury Note Index

Direct Subsidized Loans

Undergraduate Students

7/1/13

7/1/14

1.81%

2.05%

3.86%

8.25%

Direct Unsubsidized Loans

Undergraduate Students

7/1/13

7/1/14

1.81%

2.05%

3.86%

8.25%

Direct Unsubsidized Loans

Graduate/Professional Students

7/1/13

7/1/14

1.81%

3.60%

5.41%

9.50%

Direct PLUS Loans

Parents of Dependent Undergraduate Students and Graduate/Professional Students

7/1/13

7/1/14

1.81%

4.60%

6.41%

10.50%

Direct Consolidation Loans

N/A

Consolidation Loan Application Received on or after July 1, 2013

Interest rate remains the weighted average of the interest rates of the loans included in the consolidation, rounded up to the next higher one-eighth of one percent. New law removes the 8.25% cap.