Interest Rates and Loan Limits

FFELP and Direct Loans. The interest rates on FFELP and Direct Loans are federally mandated and vary by the type of loan. However, lower interest rates may be charged to FFELP borrowers by a lender. Many FFELP lenders offer interest rate reductions if loan payments are made by auto-debit and/or if the borrower works as a public servant such as a teacher, nurse, police and peace officer, paramedic, firefighter, etc.

Stafford Loan and Direct Loan Interest Rates. Beginning July 1, 2006 the interest rate on a FFELP Stafford Loan or Direct Stafford Loan made on or after July 1, 2006 was set at to 6.8% fixed. This means the interest rate on all such loans made after June 30, 2006 remains the same during the life of the loan regardless of the status of the borrower (for example, "in school") or the loan (for example, "in repayment.") Therefore, the payment on these loans remains the same for the life of the loan.

Additional Interest Rate Reduction on Subsidized FFELP Stafford and Direct Stafford Loans: Beginning, July 1, 2008 the federal government decreased the interest rate on subsidized FFELP Stafford and Direct Loans to undergraduate students. The reduction will be phased in over a four-year period ending June 30, 2012.

The applicable interest rates for these loans made during this period are as follows:

First Disbursement of a Loan: Interest rate on the unpaid balance:
Made on or after And made before
July 1, 2008 July 1, 2009 6.0 percent
July 1, 2009 July 1, 2010 5.6 percent
July 1, 2010 July 1, 2011 4.5 percent
July 1, 2011 July 1, 2012 3.4 percent

These rates are also fixed rates meaning the rate will not change during the life of the loan. However, the interest rate reductions are not permanent. The interest rate for new loans made on and after July 1, 2012 will revert back to 6.8% fixed. These interest rate changes do not affect existing loans; the terms and interest rates of these loans remain the same.

As noted above these additional interest rate reductions apply only to subsidized Stafford loans to undergraduate students; unsubsidized Stafford loans would continue to be made at the current fixed interest rate of 6.8 percent.

Prior to July 1, 2006, the interest rate on a FFELP Stafford Loan or Direct Stafford Loan was a variable rate of interest and a different variable rate applied depending on whether the student was "in school" or "in grace" status or the loan was "in repayment" or in a forbearance status. If you obtained a Stafford Loan or Direct Loan prior to July 1, 2006 it will have variable rate of interest until it is paid in full. The interest rate on these Stafford Loans and Direct Loans is set by the federal government and it changes each July 1 based on an index. Therefore, the payment due on these loans may change from year to year.

PLUS and Grad PLUS (FFELP or Direct Program) Loan Interest Rates. The interest rate on PLUS and Grad PLUS Loans (generally referred to as PLUS Loans) made on or after July 1, 2006 is a fixed rate of interest regardless of program type. Like a Stafford Loan or Direct Loan, the interest rate and payment amount will not change on these loans. Although the rate is not a variable rate of interest, the maximum interest rate which may be set by Congress is 9% (unless, of course, Congress changes that rate too).

Prior to July 1, 2006, the interest rate on FFELP PLUS Loans and Direct PLUS Loans was a variable rate of interest and all such PLUS Loans made prior to July 1, 2006 still have a variable rate of interest. Like Stafford Loans and Direct Loans, the interest rate is set by the federal government and changes each July 1 based on an index. Therefore, the payment due each month on these loans may change from year to year.

Historically, the same interest rates were charged to all PLUS Loan borrowers regardless of whether the borrower was in the FFEL or Direct Loan program. However, during a recent legislative session, an unresolved legislative error occurred. As a result, the interest rate on Direct PLUS Loans is 60 basis points lower than the interest rate on the FFELP PLUS Loan. This may be resolved in future legislative sessions. Currently, the interest rate on FFELP PLUS Loans is 8.5 percent; the interest rate on Direct PLUS loans is 7.9 percent.

Consolidation Loan Interest Rates. The interest rate on a FFELP or Direct Consolidation Loan is a fixed rate equal to the weighted average of interest rates on the loans consolidated, rounded to the nearest 1/8 of 1%, not to exceed 8.25 percent. This interest rate is fixed for the life of the loan. Generally, Consolidated Loans made under either federal program cannot be refinanced and cannot be revoked. This means you will not be able to refinance your consolidated student loan to a new interest rate.

All FFELP, Direct and Perkins Loans may be consolidated into one Consolidation Loan. Generally, your monthly payment is lower and you can take a longer time to repay your student loan debt (up to 25 years) if you consolidate your debt. You may, however, lose the benefit of any low-interest rates such as are generally available in the Perkins Loan program.

Also, most FFELP lenders offer a reduced interest rate and other borrower benefits only on Stafford and PLUS Loans; FFELP lenders generally do not offer a reduced interest rate on a Consolidated Loan other than a small interest rate reduction (one-quarter of one percent) if payments are made by auto-debit. Click here to learn more about borrower benefits.

Although a Consolidation Loan can simplify and help you manage your student loan debt, there are some cases when consolidation may not be the right choice for you. Remember that by extending the years of repayment for your loans, you may be increasing the total amount you have to pay in interest. Be sure to discuss your options with your family, financial aid office or check out the Department of Education website.

FFELP Loan Interest Rate Information. Due to recent changes in Federal law, the Servicemembers Civil Relief Act now applies to FFELP loans. This means an eligible servicemember may request that the interest rate on his or her FFELP loan(s) be reduced to 6 percent.

Perkins Loan Interest Rates. The current interest rate for Perkins Loans is 5 percent.

Loan Limits on FFELP and Direct Stafford Loans. The federal government limits the amount of FFELP and Direct Stafford Loans which may be borrowed. The maximum loan amount for these loans is limited by (1) the amount of your unmet need (which is determined by the federal government using the information on your FAFSA); (2) your grade level; and (3) your dependency status (that is, where you qualify as an independent or dependent student).

Beginning July 1, 2008 (whether the first disbursement is on or after July 1, 2008):

Years Dependant Undergraduate Student * Independent Undergraduate Student Graduate & Professional Degree Student
1st $5,500 No more than $3,500 may be in subsidized loans $9,500- No more than $3,500 may be in subsidized loans $20,500(annually)- No more than $8,500 of this amount may be in subsidized loans
2nd $6,500 - No more than $4,500 may be in subsidized loans $10,500 - No more than $4,500 may be in subsidized loans
Third & beyond (each year) $7,500 - No more than $5,500 may be in subsidized loans $12,500 - No more than $5,500 may be in subsidized loan
Maximum Total Debt from Stafford Loans when you Graduate $31,000 - No more than $23,000 may be in subsidized loans $57,000 - No more than $23,000 may be in subsidized loans $138,500 – No more than $65,500 of this amount may be in subsidized loans. This maximum includes Stafford loans (any) received for undergraduate study. (The aggregate loan limit for graduate and professional students enrolled in certain health professions is higher)
* Includes dependent students whose parents cannot borrow under the PLUS program.

Note, however, lower loan limits apply for preparatory coursework and teacher certification coursework.

PLUS Loans. The maximum loan amount under the FFELP or Direct PLUS Loan program is limited to the difference between the student's cost of attendance minus all other aid the student receives. There is no cumulative loan limit for FFELP or Direct PLUS Loans.

Loan Limits on Perkins Loans. For the 2007-2008 school year, the maximum loan amount for undergraduates is $4,000 a year and $20,000 cumulatively. The maximum loan amount for graduate and professional degree students is $6,000 a year and $40,000 cumulatively, including undergraduate loans.

Congress increases these loan limits from time to time. These increases do not occur frequently nor on a regular basis. In many cases, because of these and other caps on all available federal aid, including Federal student loans, work-study and grants, students and families must pursue other methods to cover the rising costs of education.