Interest rates are established each year for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans for which the first disbursement is on or after July 1 through the following June 30. The rate is the sum of a uniform “index rate” plus an “add-on” that varies depending on the type of loan and whether the borrower is an undergraduate or a graduate/professional student.  Under the new provision, interest rates are the same for Direct Subsidized Loans and Direct Unsubsidized Loans taken out by undergraduate students, with a different rate for Direct Unsubsidized Loans taken out by a graduate/professional student and for PLUS Loans taken out by parent borrowers or graduate/professional student borrowers.

Under the law, the index rate is determined each year as the “high yield of the 10-year Treasury note” auctioned at the final auction held prior to the June 1 preceding the July 1 of the year for which the rate will be effective, plus a statutorily defined “add-on”.  As noted, the add-on differs depending on the type of loan and the student’s grade level. Each loan type is also subject to a maximum interest rate (or cap).

The interest rate for a loan, once established, applies for the life of the loan – that is, the loan is a fixed-rate loan.

On Tuesday, May 7, 2014, the Treasury Department held a 10-year Treasury note auction that resulted in a high yield of 2.612%.  The chart below displays the resultant interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2014 and before July 1, 2015.

Undergraduate Direct Student Loans

  • Subsidized-4.66%
  • Unsubsidized-4.66%

Graduate Direct Student Loans

  • Unsubsidized-6.21%
  • Graduate PLUS-7.21%

Parent Direct Loans

  • Parent PLUS-7.21%

Leave a reply

required


*

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>