On August 9, President Obama signed the Bipartisan Student Loan Certainty Act of 2013, which changes the formula for determining federal student loan interest rates. The law comes after months of partisan bickering and uncertainty in the student loan arena, which culminated with the rate on subsidized Stafford Loans doubling to 6.8% on July 1.
The new legislation introduces a new market-based system that ties federal student loan interest rates to the government’s borrowing costs. The legislation will apply retroactively to student loans that originated July 1.
The new rates
Under the new law, student loan interest rates will be tied to the 10-year Treasury note, plus an added amount. For the current academic year (July 1, 2013, through June 30, 2014), this formula results in a fixed rate of:
- 3.8% for undergraduate students borrowing subsidized and unsubsidized Stafford Loans
- 5.4% for graduate students borrowing unsubsidized Stafford Loans
- 6.4% for parents borrowing PLUS Loans
The rates are determined as of June 1 each year and are locked in for the life of the loan. There is also a cap on interest rates: 8.25% for undergraduates, 9.5% for graduate students, and 10.5% for parents.