July 1, 2012 Interest Rates

Back in 2006, Subsidized and Unsubsidized Stafford loans both had an interest rate of 6.8%. The only real difference between the two loans back then was how the interest accrued (Unsubsidized accrues while a student is in school, and a Subsidized does not).

And then came the College Cost Reduction and Access Act of 2007. This act made it possible for students to get a break on their Subsidized loan interest rates. Each award year afterward, the interest rates were reducing. Even though the interest didn't accrue while the student was in school, the interest after a student left school would reduce, and any reduction in interest is very beneficial.

This act created interest rates on a schedule as follows:

• 6.0% in 2008-09
• 5.6% in 2009-10
• 4.5% in 2010-11
• 3.4% in 2011-12

So, what happens beginning July 1, 2012? The Subsidized interest rates will revert back to the level they were before the act took effect. So, beginning July 1, any Subsidized loan that is originated after that point will have a 6.8% interest rate. This means that the interest is essentially doubling from the 2011-12 award year to the 2012-13 award year.

Although there has been talk that the government won't change the rate until next year (because this is an election year), this is something that is unlikely to change. The government is strapped for cash, so they will be looking for any place they can get a little extra money. So, be aware that this is a change coming up, and start now budgeting yourself for an increase of interest when you are finished with your program.