Countdown to Lower Student Loan Interest Rates

Last week came with really good news on student loans – the WSJ and USA TODAY both published changes to student loans, including lower interest rates, effective July 1st.  The bulk of these changes are part of the phased-in plan of the College Cost Reduction Act of 2007, which stipulated increases in Pell Grant maxima, lower disbursement fees, and decreases in interest rates on Stafford loans each year until July 1, 2013 to make college more affordable (for the full text of the Act, click here).

Probably of most interest to readers regarding the Act, interest rates on Stafford loans (both subsidized and unsubsidized) will decrease by disbursement year.  Loans disbursed between July 1, 2006 and July 1, 2008 will retain the current 6.8% interest rate and for future disbursements, rates will be as follows:

July 1, 2008 – June 30, 2009: 6.12%

July 1, 2009 – June 30, 2010: 5.44%

July 1, 2010 – June 30, 2011: 4.76%

July 1, 2011 – June 30, 2012: 4.08%

July 1, 2012 – June 30, 2013: 3.40%

But while you may not benefit from this Act because you have a loan issued after July 1, 1998 but before July 1, 2006, the financial crisis is acting in your favor, at least with regards to federal student loans.  These loans issued between 1998 and 2006 have variable interest rates, which are determined by the 91-day May T-Bill rate (T-Bill rate + 1.70% during in-school, grace, and deferment; and T-Bill rate + 2.30% during repayment) and change every year.  This year the T-Bill rate is at a historic low, 0.18%, and the variable interest rate on student loans will fall accordingly to 1.88% during in-school, grace, and deferment period and 2.48% during repayment (currently, 4.21%)!

And what about people who got loans between July 1, 2006 and June 30, 2008, when rates were at their highest?  Before you kick yourself for having locked in that 6.8%, you may want to look into consolidation if you haven’t yet (loans can only be consolidated once in their lifespan).  While most student loan providers do not offer consolidations anymore, you can still consolidate through the Federal Direct Loan Program of the Department of Education and get a fixed 2.48% interest rate for the remainder of your repayment period starting July 1st.  For more information on eligibility and to get an application, visit the Federal Direct Consolidation Loans’ website.

Check out the WSJ and USA TODAY articles to learn more about the changes, and get ready to celebrate your independence (from high student loan interest rates) day on July 1st!


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