President Signs Bill Modifying Stafford & PLUS Interest Rates

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August 12, 2013 · by mlivolsi · Spark Notes

Prepared by: Wes Huffman  (whuffman@wpllc.net)

August 9, 2013

Today, President Obama signed the student loan interest rate compromise, H.R. 1911, into law.  As of today, loans made on or after July 1, 2013 feature interest rates tied to the 10-Year Treasury yields.  Cecelia Munoz, the Director of the White House Domestic Policy Council, described the changes as follows:

The signing of this legislation is a key victory for students, one in which Members of Congress from both sides of the aisle came together around the important mission of keeping college affordable for American students and their families.

Under the new law, nearly 11 million borrowers will see their interest rates decrease on new loans made after July 1, 2013. About 8.8 million undergraduate borrowers will see their rates on new loans drop from 6.8 to 3.86 percent, and about 1.5 million Graduate Unsubsidized Stafford borrowers will see their rates drop on new loans from 6.8 percent to 5.41 percent. Finally, over 1 million Grad PLUS and Parent PLUS borrowers will see their rates on new loans drop from 7.9 percent to 6.41 percent—the first reduction in years

Chairman John Kline (R-MN) of the House Education and Workforce Committee also praised the legislation, which was signed at a small ceremony at the White House:

I’m pleased to join President Obama in the Oval Office for the signing of H.R. 1911. This is a great day – not just for students and their families, but for all Americans.

Seeing this bipartisan proposal become law reminds us of what can be accomplished through hard work, compromise, and faith in the legislative process. I look forward to building upon this success as we work toward other shared goals, including raising the bar in the nation’s classrooms by revamping federal K-12 law, strengthening job training opportunities for American workers, and improving college affordability and access through the upcoming reauthorization of the Higher Education Act.

The Department of Education has indicated guidance on Direct Loan operations with the new rates will be provided imminently.  This guidance will be posted on the IFAP website.

Given the immediate nature of the rate modification and the requirement that private loan disclosures include federal loan interest rates, all private loan applications, including institutional and HHS loans, will need to be modified.  The CFPB has yet to provide formal guidance, but may do so in the near future.

Senate HELP Committee Ranking Republican Lamar Alexander (TN) and Banking Committee Ranking Republican Mike Crapo (ID) have written CFPB Director Richard Cordray seeking a “reasonable timeframe” for private student lenders (including institutions of higher education) to make these modifications.  The letter is included with this “Spark” as separate attachment.

Additional Information

A table of the new interest rates for July 1, 2013-June 30, 2014 is included below:

Loan Interest Rate
Direct Subsidized Loans (Undergraduates) 3.86%
Direct Unsubsidized Loans (Undergraduates) 3.86%
Direct Unsubsidized Loans (Graduate or Professional   Students) 5.41%
Direct PLUS Loans (Parents and Graduate or Professional   Students) 6.41%
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8.8.13 AlexanderCrapo Letter to Cordray

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