July 1 Brings Record-Setting Drop in Interest Rates on Federal Student Loans
Article Date: 7-8-2008
As a result of the string of rate cuts made by the Fed over the last year, most parent and student borrowers who have existing variable-rate federal student loans will see their interest rates drop by 3 percent on July 1, 2008 — the biggest rate drop in the history of the federal student loan program.
New undergraduate borrowers will also be seeing lower rates on subsidized Stafford student loans, with a 3.4-percent rate cut being phased in for new borrowers over the next four years as part of the College Cost Reduction and Access Act of 2007.
Variable-Rate Federal Stafford Student Loans
Students who took out Stafford student loans prior to July 1, 2006, will see a 3-percent reduction in their variable interest rate, which resets every year on July 1.
Stafford borrowers whose college loans were disbursed between July 1, 1998, and June 30, 2006, and who are currently enrolled in school at least half time, or whose student loans are currently in an authorized deferment or grace period, will see their Stafford rate drop from 6.62 percent to 3.61 percent.
If these borrowers’ student loans are in repayment or forbearance, the interest rate on their Stafford loans will drop from 7.22 percent to 4.21 percent.
The variable rates on Stafford student loans taken out prior to July 1, 1998, although higher than the rates on later variable-rate Stafford loans, will also drop by 3 percent.
Date of First Disbursement
In-School Rate*
as of July 1, 2008Repayment Rate as of July 1, 2008
July 1, 1998 – June 30, 2006
3.61%
4.21%
July 1, 1995 – June 30, 1998
4.41%
5.01%
Oct. 1, 1992 – June 30, 1995
5.01%
5.01%
*Includes grace and deferment periods.
Fixed-Rate Federal Stafford Student Loans
As a result of the CCRAA legislation that passed last October, undergraduate borrowers who take out new subsidized Stafford student loans on or after July 1, 2008, will see a gradual reduction in interest rates over the next four years.
The rate on these student loans, which as of July 1, 2006, had been fixed at 6.8 percent, will drop to 6.0 percent on July 1, 2008. The fixed rate will continue to drop on July 1 each year for new college loans until July 1, 2012, when the interest rate is set to revert back to 6.8 percent, barring new legislation that keeps the rate reductions in place.
Date of First Disbursement
Interest Rate
July 1, 2006 – June 30, 2008
6.80%
July 1, 2008 – June 30, 2009
6.00%
July 1, 2009 – June 30, 2010
5.60%
July 1, 2010 – June 30, 2011
4.50%
July 1, 2011 – June 30, 2012
3.40%
The interest rate on new unsubsidized Stafford student loans for undergraduates will remain fixed at 6.8 percent, as will the rate on graduate Stafford student loans.
Federal PLUS Loans for Parents
Parents who took out variable-rate PLUS loans between July 1, 1998, and June 30, 2006, will see the same 3-percent drop as variable-rate Stafford borrowers, when their interest rates reset on July 1, 2008. Variable PLUS rates for loans disbursed in this time period will fall from the current 8.02 percent to 5.01 percent.
The interest rate on federal PLUS loans taken out on or after July 1, 2006, remains fixed at 8.5 percent with no changes.
Learn more about College Loans and Private Student Loans.
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