interest rates on student loans
Education Loan Interest Rates
The interest rates on Federal education loans change on July 1, and are based on the 91-day rate from the last Treasury auction in May and the average one-year constant maturity Treasury yield (CMT) for the last calendar week ending on or before June 26th. The following rates are updated automatically by a program that retrieves the latest appropriate Treasury bill auction data from the US Treasury web site. (During the month of June, the rates may reflect the updated reference rates. Check the date of the 91-day T-Bill and CMT reference rates listed below to see whether the student loan rates refer to the old or new academic year.)
Please note that the College Cost Reduction and Access Act of 2007 cut the fixed interest rates on newly originated subsidized Stafford loans for undergraduate students to 6.0% (2008-09), 5.6% (2009-10), 4.5% (2010-11) and 3.4% (2011-12), with a return to 6.8% in 2012-13. These cuts are available only to undergraduate students, not graduate students, and only for subsidized Stafford loans, not unsubsidized Stafford loans. Those loans remain at a fixed rate of 6.8%.
The Health Care and Education Reconciliation Act of 2010 switched to 100% Direct Lending for all new loans starting July 1, 2010. The Direct Loan program has a lower interest rate on the PLUS loan than in the FFEL program (7.9% vs. 8.5%).
In the following table, the In-School Rate includes grace and deferment periods, and the Repayment Rate includes forbearance periods.
For use with Net Present Value calculations, the discount rate based on the most recent 10-year Treasury note is 2.75%.
The interest rates listed above are based on the following reference rates:
- 91-day T-Bill rate of 0.05% (05-28-2013)
The interest rate formulas are as follows, where the 91-day T-bill rate is the investment yield of the 13-week Treasury Bill, not the discount rate:
As of 11-12-2013, the current projections for the 2014-2015 variable interest rates are:
- Projected Stafford Loan (In-School/Grace Period): 1.78%
These projections would yield the following consolidation loan interest rates:
- Projected Stafford Loan Consolidation (In-School/Grace Period): 1.88%
- Projected Stafford Loan Consolidation (Repayment Period): 2.50%
- Projected PLUS Loan Consolidation: 3.25%
These projections represent a projected increase of 0.030% in interest rates.
These projections indicate what the student loan interest rates would be if they were based on the most recent 91-day T-Bill auction, as opposed to the last 91-day T-Bill auction in May. They do not take into account the impact of future federal funds rate hikes and cuts by the Federal Open Market Committee (FOMC). Interest rate hikes and cuts by the FOMC usually trigger corresponding increases and cuts in education loan interest rates. Since education loan interest rates are based on market rates, and the market tends to anticipate interest rate moves by the FOMC, the dates of upcoming FOMC meetings should be considered when projecting likely education loan interest rate increases. Specifically, one should consider the dates of all FOMC meetings between the most recent 91-day T-Bill auction and the last 91-day T-Bill auction in May, plus any regularly scheduled June meetings of the FOMC. For example, if the FOMC has increased the fund rate by 25 basic points at each of its last three meetings and there is one more FOMC meeting before the last 91-day T-Bill auction in May, one can expect education loan interest rates to be about 25 basis points higher than the projections listed above.
On February 8, 2002, President Bush signed legislation changing the interest rates on education loans from variable rates to fixed rates for new loans issued after July 1, 2006. The interest rate on the Stafford Loan is 6.8% and the interest rate on the PLUS Loan is 7.9%. The scheduled increase in the PLUS Loan interest rate was subsequently changed from 7.9% to 8.5% by the Higher Education Reconciliation Act of 2005, as passed on February 8, 2006. This bill, however, failed to make a parallel change to the Direct Loan program, so only the FFEL PLUS Loan interest rate will be increasing to 8.5%. Thus the fixed rates on new loans for which the first disbursement occurs on or after July 1, 2006 are: 6.8% Stafford, 7.9% Federal Direct PLUS and 8.5% FFEL PLUS.
Other recent interest rates include:
- 30-year Fixed Rate Mortgage: 4.87% [04/07/2011]
- 91-day T-Bill: 0.09% [04/01/2011]
- Certificate of Deposit (6 month): 0.36% [04/01/2011]
- Commercial Paper Rate (3 month): 0.25% [04/01/2011]
- Constant Maturity Treasury (1 year): 0.30% [04/01/2011]
- Federal Funds Rate (Effective Rate): 0.13% [03/30/2011]
- LIBOR (1 month): 0.29% [04/01/2011]
- LIBOR (3 month): 0.42% [04/01/2011]
- Prime Lending Rate: 3.25% [03/30/2011]
Recent interest rate spreads include:
- Spread Commercial Paper vs LIBOR (3 month): 0.17% [04/01/2011]
- Spread Prime Lending Rate vs LIBOR (1 month): 2.96% [03/30/2011]
- Spread Prime Lending Rate vs LIBOR (3 month): 2.83% [03/30/2011]
Additional rate information can be found at the NCHELP E-Library.