New Interest Rates on Federal Student Loans–Again

On August 9, President Obama signed the Bipartisan Student Loan Certainty Act of 2013, which changes the formula for determining federal student loan interest rates. The law comes after months of partisan bickering and uncertainty in the student loan arena, which culminated with the rate on subsidized Stafford Loans doubling to 6.8% on July 1.

The new legislation introduces a new market-based system that ties federal student loan interest rates to the government’s borrowing costs. The legislation will apply retroactively to student loans that originated July 1.


The new rates

Under the new law, student loan interest rates will be tied to the 10-year Treasury note, plus an added amount. For the current academic year (July 1, 2013, through June 30, 2014), this formula results in a fixed rate of:

  • 3.8% for undergraduate students borrowing subsidized and unsubsidized Stafford Loans
  • 5.4% for graduate students borrowing unsubsidized Stafford Loans
  • 6.4% for parents borrowing PLUS Loans

The rates are determined as of June 1 each year and are locked in for the life of the loan. There is also a cap on interest rates: 8.25% for undergraduates, 9.5% for graduate students, and 10.5% for parents.


Key details

 

New rate

Old rate

Eligibility

Borrowing limits

Stafford Loan (subsidized)

3.8%

6.8%

Undergraduates with demonstrated financial need

For dependent undergraduates:

1st year: $5,500 ($3,500 subsidized)

2nd year: $6,500 ($4,500 subsidized)

3rd, 4th, 5th year: $7,500 ($5,500 subsidized)

Max: $31,000 ($23,000 subsidized)

For graduate students:

$20,500 per year (unsubsidized only); max $138,500 ($224,000 for health professionals)

Stafford Loan (unsubsidized)

3.8%–U

5.4%–G

6.8%

Undergraduates and graduate students without financial need

PLUS Loan

6.4%

7.9%

Parents of dependent undergraduates and independent graduate and professional students

Total cost of education, minus any financial aid received by parent or student

 The federal government pays the interest on subsidized Stafford Loans while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized Stafford Loans, the student pays the interest during these periods. Eligibility for subsidized Stafford Loans is based on financial need, as determined by the federal government’s financial aid application, the FAFSA.

http://www.ameripriseadvisors.com/brian.x.white

Authored by: Brian White

Brian White is a Financial Advisor and an Associate Vice President at Ameriprise Financial located in Melville. Brian has over seven years experience in the financial services industry and runs a successful financial planning practice.  Over his career as a Financial Advisor, Brian has achieved notable accomplishments that rank him among the top of his peers such as The Mercury Award, The First Year Top Achiever and The Circle of Success.   Brian is a member of the Advanced Advisor Group and has earned the Chartered Retirement Planning Counselor designation. Brian works with clients to design a personal financial plan based on their life goals. This strategy focuses on helping them become more confident about managing their financial objectives. It is designed to provide solutions to both the everyday and long-term financial questions and is personalized to meet the needs of high net worth individuals and small business owners. Brian and his staff continually monitor progress toward financial goals and update plans based on changes in market conditions and individual situations. Brian attended Adelphi University from 2000-2004 and graduated Cum Laude with a Bachelors Degree in Business Finance. Contact:  631-574.2973 | Fax: 631.582.4243 | Mobile: 631.871.2560 | Brian.X.White@ampf.com Do you REALLY know what a comprehensive financial plan is?  Listen to Brian's 1/2 hour segment on TimetoPlay.com's Empower Half Hour The information contained in this material is being provided for general education purposes and with the understanding that it is not intended to be used or interpreted as specific legal, tax or investment advice. It does not address or account for your individual investor circumstances. Investment decisions should always be made based on your specific financial needs and objectives, goals, time horizon and risk tolerance. The information contained in this communication, including attachments, may be provided to support the marketing of a particular product or service. You cannot rely on this to avoid tax penalties that may be imposed under the Internal Revenue Code. Consult your tax advisor or attorney regarding tax issues specific to your circumstances. Neither Ameriprise Financial Services, Inc. nor any of its employees or representatives are authorized to give legal or tax advice. You are encouraged to seek the guidance of your own personal legal or tax counsel. Ameriprise Financial Services, Inc. Member FINRA and SIPC. The information in this document is provided by a third party and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial Services, Inc. While the publisher has been diligent in attempting to provide accurate information, the accuracy of the information cannot be guaranteed. Laws and regulations change frequently, and are subject to differing legal interpretations. Accordingly, neither the publisher nor any of its licensees or their distributees shall be liable for any loss or damage caused, or alleged to have been caused, by the use or reliance upon this service.

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