Federal Loan Update
The following information is taken from official correspondence we received from the US Dept. of Education in mid-August 2013.
Effective July 1, 2013, the fixed interest rate for the Federal Direct Unsubsidized Stafford Loan will be 5.41%. The fixed interest rate for the Federal Direct Graduate PLUS Loan will be 6.41%. Please note that these interest rates are fixed-variable. This means that your interest rate(s) on this year's loan(s) will always be the same. However, in subsequent aid years, you may have a different interest rate for your new loan(s).
As of Dec. 1, 2013, the origination fees were increased by the Dept. of Ed. The origination fee on each Stafford Loan disbursement will be 1.072%, while your PLUS Loan origination fee will be 4.288%. The origination fee will be removed from the amount that disburses to your student account. (e.g. If you borrowed/accepted a $5,500 Unsub Stafford Loan, what would actually disburse = $5,441). Please read on for details.
Interest Rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans
Interest rates will be established each year for Direct Unsubsidized and Direct PLUS loans for which the first disbursement is on or after July 1 through the following June 30. The rate will be the sum of a uniform “index rate” plus an “add-on” that varies depending on the type of loan (Unsubsidized or PLUS) and the borrower’s grade level (graduate/professional). Interest rates will be the same for Direct Subsidized Loans and Direct Unsubsidized Loans taken out by an undergraduate student, with a different rate for Direct Unsubsidized Loans taken out by a graduate/professional student and for PLUS Loans taken out by parent borrowers or graduate/professional student borrowers.
Under the law, the index rate is determined each year as the “high yield of the 10-year Treasury note” auctioned at the final auction held prior to the June 1 preceding the July 1 of the year for which the rate will be effective, plus a statutorily defined “add-on”. As noted the add-on will differ depending on the type of loan and the student’s grade level. Each loan type also has a maximum interest rate (or cap).
The interest rate for a loan, once established, will apply for the life of the loan – that is, the loan will be a fixed-rate loan. As a result, it is likely that many borrowers will have a set of fixed-rate loans, each with a different interest rate, including the 3.4% and/or 6.8% Direct Subsidized and Direct Unsubsidized loans made prior to July 1, 2013.
Interest Rate for Direct Consolidation Loans
For Direct Consolidation Loans, the interest rate remains the weighted average of the interest rates on the loans included in the consolidation, rounded up to the next higher one-eighth of one percent. The only change made by the new law is the removal of the 8.25% cap.
Direct Unsubsidized Loans Converted from TEACH Grants
Under the requirements of the TEACH Grant Program, if a TEACH Grant is converted to a Direct Unsubsidized Loan, interest accrues back to the date when the TEACH Grant was first disbursed. Consistent with that statutory provision, the interest rate that will apply to a TEACH Grant that has been converted to a Direct Unsubsidized Loan will be the rate that was in effect for Direct Unsubsidized Loans on the date the TEACH Grant was first disbursed.
Federal Loan Servicer Preparation and Notification to Borrowers
Since the amended law specifically provides that the new interest rate determinations apply “retroactively” to July 1, 2013, Federal Student Aid has been working with our federal loan servicers to ensure that: (1) they are prepared to implement the new rates for new Direct Loans they receive from the Common Origination and Disbursement (COD) System; (2) they reset interest rates for all loans first disbursed on or after July 1, 2013 that they have already received for servicing; and (3) they notify all affected borrowers of the interest rate change. While this will be accomplished without any action on the part of schools or the students/borrowers, the Department’s Direct Loan servicers will send revised information to borrowers who had been provided interest rate information based on the law prior to enactment of the Bipartisan Student Loan Certainty Act of 2013.
Important Information About Direct Unsubsidized Loans for Graduate Students
As noted, the interest rate on Direct Unsubsidized Loans will differ depending on whether the student is an undergraduate student or a graduate/professional student. Therefore, special origination requirements will be necessary for any undergraduate student who received a loan that was first disbursed on or after July 1, who becomes a graduate/professional student during the loan period. In such instances, the institution must cancel any scheduled (or actual) disbursements that would have occurred when the student will be a graduate/professional student and adjust the loan’s loan period end date to coincide with the borrower’s undergraduate period of enrollment. The institution would then originate another Direct Unsubsidized Loan for the period when the student will be a graduate or professional student. In most instances, the academic year for both loans will be the same. Adjustments to loan period or academic year dates must comply with DCL GEN-13-13.
Because graduate/professional students are not eligible to receive Direct Subsidized Loans, the new graduate/professional Direct Unsubsidized Loan would include any Direct Subsidized Loan amount the student was originally scheduled to receive for the new loan period.