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New Student Loan Bill Passes

Shannon Vasconcelos

Written by Shannon Vasconceloson August 1st, 2013

I came to College Coach with close to 10 years of experience in college financial aid offices. I began my career at Boston University, where I counseled students and their parents on the financial aid process and reviewed undergraduate financial aid applications. At Tufts University, where I served as assistant director of financial aid, I developed expertise in the field of health professions financial aid. I was responsible for financial aid application review, grant awarding and loan processing, and college financing and debt management counseling for both pre- and post-doctoral dental students. I have also served as an active member of the Massachusetts Association of Student Financial Aid Administrator’s Early Awareness and Outreach Committee, coordinating early college awareness activities for middle school students; as a trainer for the Department of Education’s National Training for Counselors and Mentors, educating high school guidance counselors on the financial aid process; and as a volunteer for FAFSA Day Massachusetts, aiding students and parents with the completion of online financial aid applications.
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Education loan relief is on the way for today’s college students and their parents, at least in the short-term.  Congress just passed, and President Obama is expected to sign into law, a compromise bill that keeps student loan interest rates low for today’s crop of college students, while minimizing the cost to the federal government in the long run. This is great news for students on campus this fall, who have been anticipating borrowing at twice the interest rate of last year’s loans. When prior student loan regulation expired on July 1 and Congress failed to act, the interest rate on the Subsidized Direct Loan doubled from a fixed 3.4% to 6.8% for all future borrowers. Congress continued to negotiate after the July 1 deadline, however, and have now passed a compromise bill that will tie Direct and PLUS Loan interest to financial market rates, and will be retroactively applied to all borrowers since July 1, 2013. New Student Loan Bill Rate Details Moving forward, federal education loan rates will be set annually at a rate equal to the high yield of the 10-year treasury note sold at the final auction held prior to June 1 plus a particular point spread determined by the type of borrower:
  • Undergraduate student Direct Subsidized and Unsubsidized Loan borrowers will pay a rate equal to the 10-year T-Note + 2.05%, capped at 8.25%.
  • Graduate student Direct Unsubsidized Loan borrowers will pay a rate equal to the 10-year T-Note + 3.6%, capped at 9.5%.
  • Parent Direct PLUS Loan borrowers will pay a rate equal to the 10-year T-Note + 4.6%, capped at 10.5%.
Under the new formula, education loan rates for the 2013/14 school year have been calculated at:
  • 3.86% for undergraduate students (compared to 3.4% for Subsidized Loans and 6.8% for Unsubsidized Loans in 2012 – 2013)
  • 5.41% for graduate students (compared to 6.8% in 2012 – 2013)
  • 6.41% for parents (compared to 7.9% in 2012 – 2013).
These rates are fixed for the life of the loan, though loans borrowed in future years will be calculated based upon the future year’s treasury note rate. New Student Loan Bill Benefits Today’s Borrowers This legislation, tying student loan rates to financial markets, is therefore a boon to the class of 2013 and continuing students in this low interest rate environment, as each of the above rates is lower than the prior fixed interest rates offered to students and their parents.  The legislation may not be as beneficial to borrowers in future years, however, for as the economy improves and interest rates rise, so too will student loan rates.  These market-based rates will minimize the costs to the federal government, while caps were put in place to ensure that an excessive debt burden will not be borne by education loan borrowers in high interest rate environments. Contact-Us-CTA


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