WASHINGTON, DC – Nearly 8 million undergraduate students next year will see their student loan rates drop from 4.66 percent to 4.29 percent, saving borrowers millions of dollars in interest, according to senators who sponsored the Bipartisan Student Loan Certainty Act of 2013.
Senators Lamar Alexander (R-Tenn.), Angus King (I-Maine), Richard Burr (R-N.C.), and Joe Manchin (D-Va.) sponsored the legislation that tied student loans to market rates. It became law on August 9, 2013.
Starting with loans issued on July 1, this year’s interest rate on undergraduate loans will be 4.29 percent, down from the current rate of 4.66 percent. Undergraduate loans are 84 percent of the total number of loans issued. The federal government is expected to loan nearly $100 billion to students next year.
The rate on graduate loans will be 5.84 percent, down from 6.21 percent. And interest for PLUS loans for graduate students and parents will be 6.84 percent, down from 7.21 percent.
Under the Bipartisan Student Loan Certainty Act, rates are tied to the government’s 10-year borrowing cost, specifically the yield on the last auction of the U.S. Treasury 10-year Note held before June of each year. The rates for undergraduate loans are the 10-year Note plus 2.05 percentage points—an addition to cover costs of defaults, collections, deferments, forgiveness, and delinquency. Undergraduate rates were also capped at 8.25 percent, so students will never have to pay more than 8.25 percent interest on their loans.