Interest Rates on Variable Federal Student Loans Dropped to Historic Lows

Posted by:  BeamaLife Editor  on 8 Jul, 2009

On July 1, 2009, the interest rates on variable federal Stafford and PLUS Loans dropped to the lowest rates in the history of the federal student loan program. These new rates apply only to loans issued on or after July 1, 1998 and before July 1, 2006. The Department of Education sets the rates once each year based on the most recent three-month Treasury bill auction held in May.

The new interest rate on Stafford Loans in repayment status is 2.48%, down from 4.21%. The interest rate on in-school, grace, or deferment status Stafford Loans is 1.88%, down from 3.61%. And the new interest rate on PLUS Loans is 3.28%, down from 5.01%. These rates are in effect through June 30, 2010.

Borrowers with variable-rate federal student loans can lock in the current applicable rate on their loans by consolidating them. The interest rate on a consolidation loan is a fixed rate that is equal to the weighted average of the current applicable interest rates on the loans being consolidated, rounded up to the nearest 1/8th of a point. Borrowers can only consolidate once, so if they’ve done so previously, they won’t be able to take advantage of the new low rates. Also, private student loans can’t be included in a federal consolidation loan. Borrowers who have graduated from school and are eligible to consolidate their loans should go through the Federal Direct Loan Consolidation program at www.loanconsolidation.ed.gov.

For borrowers with Stafford or PLUS Loans issued on or after July 1, 2006, the loans will have a fixed interest rate for the life of the loan. For unsubsidized Stafford Loans, the rate is 6.8%, and for PLUS Loans, the rate is 8.5%. For subsidized Stafford Loans, the interest rate will be reduced as follows over the next few years:

• 5.6% for loans first disbursed on or after July 1, 2009, and before July 1, 2010
• 4.5% for loans first disbursed on or after July 1, 2010, and before July 1, 2011
• 3.4% for loans first disbursed on or after July 1, 2011, and before July 1, 2012

Please call (877) 972-3262 for best college savings plans now.