Interest Rates and Fees on Federal Student Loans

Summary: Interest rates on new federal student loans are fixed for the life of the loan. For loans taken out for the 2016-2017 school year, undergraduate students receive a 3.76% interest rate and graduate students receive a 5.31% interest rate. A fee of about 1% is deducted from your loan before the funds are sent to your school.

Rates for the 2016-2017 Academic Year

Undergraduate Student with Backpack Icon

Undergraduate Student

Interest rate: 3.76% fixed

Origination fee: 1.068%

Interest rate cap: 8.25%

Graduate Student with Briefcase Icon

Graduate Student

Interest rate: 5.31% fixed

Origination fee: 1.068%

Interest rate cap: 9.5%

Interest rates are the same for Direct Subsidized Loans and Direct Unsubsidized Loans (sometimes referred to as Stafford Loans). Since the federal government pays the interest on subsidized loans while you are enrolled in school on at least a half-time basis, the Direct Subsidized Loan offers you the equivalent of a 0% interest rate during the in-school period, making it less expensive than the Direct Unsubsidized Loan.

How Student Loan Interest Rates are Set

Every year on July 1, interest rates are reset based on current market rates. The interest rates are based on the 10-year Treasury Note (determined each year by the final auction prior to June 1) plus a fix margin.

Undergraduate Student Interest Rate =

Undergraduate Interest Rate Equals 10-year Treasury Plus 2.05% Margin

Graduate Student Interest Rate =

Graduate Interest Rate Equals 10-year Treasury Plus 3.6% Margin

Direct Loan Interest Rates Since 1992

Interest rates: Fixed, 2006-2007 to present

Academic Year Direct Subsidized Loans
(Undergraduate)
Direct Unsubsidized Loans
(Undergraduate)
Direct Unsubsidized Loans
(Graduate)
2016-2017  3.76% 3.76% 5.31%
2015-2016  4.29% 4.29% 5.84%
2014-2015 4.66% 4.66% 6.21%
2013-2014 3.86% 3.86% 5.41%
2012-2013 3.40% 6.80% 6.80%
2011-2012 3.40% 6.80% 6.80%
2010-2011 4.50% 6.80% 6.80%
2009-2010 5.60% 6.80% 6.80%
2008-2009 6.00% 6.80% 6.80%
2007-2008 6.80% 6.80% 6.80%
2006-2007 6.80% 6.80% 6.80%

Interest rates: Variable, prior to 2006-2007

Before 2006-2007, interest rates on Stafford Loans (now known as Direct Loans) were variable, with different rates, depending on whether the borrower was in school, in the 6-month grace period after leaving school, or in the repayment period. (In 1993-1994 and earlier award years, the interest rates were the same for the in-school, grace, and repayment periods.) Interest rates during the repayment period were 0.60% higher (see table).

At that time, borrowers could lock in their interest rate (rounded to the nearest 1/8th of a percentage point) by consolidating the loans. Rates were the same for undergraduate, graduate, and professional students. Interest rates were also the same for subsidized and unsubsidized Stafford Loans.

Academic Year In-School and Grace Periods Repayment Period
2005-2006 4.70% 5.30%
2004-2005 2.77% 3.37%
2003-2004 2.82% 3.42%
2002-2003 3.46% 4.06%
2001-2002 5.39% 5.99%
2000-2001 7.59% 8.19%
1999-2000 6.32% 6.92%
1998-1999 6.86% 7.46%
1997-1998 7.65% 8.25%
1996-1997 7.65% 8.25%
1995-1996 8.25% 8.25%
1994-1995 7.43% 7.43%
1993-1994 6.22% 6.22%
1992-1993 6.94% 6.94%

Fees on Direct Loans

The current fee on the Direct Loans is 1.068% for loans disbursed (funds sent to your school) from 10/1/2015 to 9/30/2016.

Year
Total Loan Fees
2015-2016 (10/1/15 - 9/30/16)  1.068%
2014-2015 (10/1/14 - 9/30/15)  1.073%
2014-2015 (7/1/14 - 9/30/14) 1.072%
2013-2014 (12/1/13 - 6/30/14) 1.072%
2013-2014 (7/1/13 - 11/30/13) 1.051%
2012-2013 1.0%
2011-2012 1.0%
2010-2011 1.0%
2009-2010 1.5%
2008-2009 2.0%
2007-2008 2.5%
2006-2007 3.0%
2005-2006 and before 4.0%

How fees affect the total loan cost

Loan fees are basically a form of up-front interest. For example, if your loan has a 10-year repayment term, a 4% fee is the about the same as an increase of about .875% to 1% in the interest rate. If your loan has a 30-year repayment term, a 4% fee is the same as an increase of about .334% to .5% in the interest rate.

Recommendations

  1. File the FAFSA every year to maintain eligibility for student aid.
  2. When you compare different types of student loans, make sure you understand the interest rates and fees before you borrow.
  3. If you’ve hit the limits on federal student loans, but you still need additional funds to complete your education, consider private student loans as a potential option.
  4. When you file your federal income taxes, be sure to take the student loan interest deduction. You can deduct up to $2,500 total in federal and private student loan interest each year.
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