On Friday, August 2, 2013, President Barack Obama signed the Bipartisan Student Loan Certainty Act of 2013 to reform the federal government’s student loan system. The new law amends the Direct loan interest rate section of the Higher Education Act of 1965. Interest rates will be established each year for Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans for which the first disbursement is on or after July 1 through the following June 30.
The rate will be the sum of a uniform “index rate” plus an “add-on” that varies depending on the type of loan (Subsidized/Unsubsidized or PLUS) and the borrower’s grade level (undergraduate or graduate/professional). These interest rates are effective for all Direct Loans with a first disbursement on or after July 1, 2013. The interest rates are calculated using a base 10-year Treasury Note Index of 1.81% plus an add-on amount for each loan program--2.05% for Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduate students, 3.60% for Direct Unsubsidized Loans for graduate/professional students, and 4.60% for parent and graduate PLUS. Under the new interest rate structure, all Direct Loans except Direct Consolidation Loans will be “variable-fixed,” meaning students would receive a new rate with each new loan, but then that rate would be fixed for the life of the loan.
There are also interest rate caps at 8.25% for Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduate students, 9.50% for Direct Unsubsidized Loans for graduate/professional students; and 10.50% for parent and graduate PLUS. For Direct Consolidation Loans, the interest rate remains the weighted average of the interest rates of the loans included in the consolidation, rounded up to the next higher one-eighth of one percent, without a cap.