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Federal Interest Rates for College Loans

Federal interest rates for student loans are solely determined by federal law.

When Democrats took control of Congress in 2007, they passed the College Cost Reduction and Access Act.

A section of this law (201) cuts the interest rates on one type of loan.

If you take out an undergraduate subsidized loan for the 2011-2012 school year, you will benefit greatly by these rate cuts.

Next year (unless Congress takes action) they will revert to old rates- the same as unsubsidized loans- 6.8%.

Date Dispersed	Interest Rate
July 1, 2008- July 1, 2009	6.0%
July 1, 2009- July 1, 2010	5.6%
July 1, 2010- July 1, 2011	4.5%
July 1, 2011- July 1, 2012	3.4%

College Cost Reduction and Access Act

Remember, these reductions are only for subsidized Stafford loans, where the government pays the interest while you are in school.

A graduate Stafford loan, whether subsidized (now eliminated) or unsubsidized, has a fixed rate of 6.8%.

An unsubsidized undergraduate Stafford loan also has a fixed rate of 6.8%.

The rate for Perkins loans is a fixed 5.0%.

All Parent college loans are now Direct PLUS loans. They can only be obtained directly through the U.S. Department of Education. Rates for these loans are now fixed at 7.9%.

If you are wondering how these rates compare to past ones, check out this graph:

Student Loan Interest Rates

* 2008-9 Stafford rates are for fixed, subsidized loans
* 2006-9 Plus rates are for fixed FFELP loans

Although PLUS rates have historically been higher than Stafford rates, you can see that the gap has grown larger with the passage of the latest college loan legislation.

You can check to see what rate your loans would qualify for using the student loan consolidation calculator. Many graduates will qualify for a lower interest rate when they consolidate.

Federal interest rates for college loans have always been something of a political football. However, for the foreseeable future there won't be any drastic difference in the rates. SAFRA, the major higher education legislation passed in this year's health bill, did not include interest rate changes.

But lowering federal interest rates may make life after college more affordable, but it does not guarantee that students can afford the cost of tuition at the schools they want to attend.

Right now, these tuition gaps force many students to take out private student loans. When students realize they need thousands more than they will receive from the federal government, they do not always take the time to shop around for the best private rates. To make sense, any decrease in federal rates should be accompanied by raising annual and lifetime limits.

Bottom line: For a student, federal interest rates on subsidized loans are a good deal. For a parent, the deal is not as good, but if you do not have sterling credit or collateral to use, a plus loan is an easy option.