Posted Date: May 15, 2014

Author:  Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid

Subject: Interest Rates for Direct Loans First Disbursed between July 1, 2014 and June 30, 2015.

Last year President Obama signed the Bipartisan Student Loan Certainty Act of 2013, which amended section 455(b) of the Higher Education Act (HEA) to provide new formulas for the determination of interest rates for all Federal Direct Loan types.

Interest Rates for Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans

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.

Interest Rates for Direct Consolidation Loans

For Direct Consolidation Loans, as was in the past, the interest rate is the weighted average of the interest rates on the loans included in the consolidation, rounded up to the next higher one-eighth of one percent. There is no longer a maximum interest rate for Direct Consolidation Loans.

Direct Loan Interest Rates for 2014-2015

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.

Federal Direct Student Loans 2014-2015 Interest Rates
Effective for Loans First Disbursed on or after July 1, 2014 and
prior to July 1, 2015

Loan Type

Borrower Type

Index

Add-On

Fixed Interest Rate

10-Year Treasury Note

Direct Subsidized Loans

Undergraduate Students

2.612%

2.05%

4.66%

Direct Unsubsidized Loans

Undergraduate Students

2.612%

2.05%

4.66%

Direct Unsubsidized Loans

Graduate/Professional Students

2.612%

3.60%

6.21%

Direct PLUS
Loans

Parents of Dependent Undergraduate Students and Graduate/Professional Students

2.612%

4.60%

7.21%

Thank you for your continued support of the Federal student assistance programs.

   

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