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Congress Passes One-Year Interest Rate Freeze

Mark Kantrowitz

June 29, 2012

These borrowers will remain eligible for unsubsidized Stafford loans and their subsidized Stafford loans will be treated as though they were unsubsidized Stafford loans. If the borrower doesn’t pay the interest as it accrues, the interest will be capitalized by adding it to the loan balance.

New borrowers are borrowers who, as of July 1, 2013, do not have any existing federal education loans.

The 150% time frame restriction applies only to the period of time during which the student received subsidized Stafford loans. A borrower would have to have received subsidized Stafford loans (including from prior educational programs) for longer than 150% of the normal time frame to graduate to lose eligibility for subsidized interest benefits.

Impact of the Interest Rate Extension

On average, the 30 percent of undergraduate students who will receive subsidized Stafford loans in 2012-13 will save about $6 a month and less than $1,000 over the life of the loan due to the lower interest rate.

Graduate students were never eligible for the 3.4 percent interest rate. The interest rate on subsidized Stafford loans to graduate students remained at 6.8 percent. In addition, graduate students will no longer be eligible for subsidized Stafford loans starting July 1, 2012, due to changes enacted by the Budget Control Act of 2011.

The extension to the 3.4 percent interest rate is for one year only. The interest rates on existing loans do not change. Only new loans made from July 1, 2012 to June 30, 2013 will have a fixed interest rate of 3.4 percent. New loans made on or after July 1, 2013 will once again be at the 6.8 percent interest rate. The 3.4 percent interest rate is unlikely to be extended to 2013-14 or subsequent years, given the lack of election-year pressure when the interest rate extension comes up again for renewal.


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