5-13: Interest Rates for Direct Loans First Disbursed between July 1, 2016 and June 30, 2017

Posted Date: May 13, 2016

Author:  Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid

Subject: Interest Rates for Direct Loans First Disbursed between July 1, 2016 and June 30, 2017

Under section 455(b)(8) of the Higher Education Act (HEA), interest rates on Federal Direct Loans that are first disbursed on or after July 1, 2013 are set according to a formula that is based upon an auction of 10-year Treasury notes.  Separate interest rates are established each year for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans for which the first disbursement is made on or after July 1 through the following June 30.

Each rate is the sum of a uniform index rate plus an add-on that varies depending on the type of loan and whether the borrower is an undergraduate or a graduate or professional student.  The index rate is the high yield of the 10-year Treasury note auctioned at the final auction held prior to the June 1 preceding the July 1 of the year for which the rate will be effective.  Each loan type is also subject to a maximum interest rate (or cap). The interest rate for a loan, once established, applies for the life of the loan – that is, the loan is a fixed-rate loan.

Direct Loan Interest Rates for 2016-2017

On Wednesday, May 11, 2016, the United States Treasury Department held a 10-year Treasury note auction that resulted in a high yield of 1.710%. The chart below shows the resultant interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2016 and before July 1, 2017. 

Federal Direct Student Loans 2016-2017 Interest Rates
(For Loans First Disbursed on or After July 1, 2016 and
Prior to July 1, 2017)

Loan Type

Borrower Type

Index

Add-On

Fixed
Interest
Rate

10-Year
Treasury
Note

Direct
Subsidized
Loans

Undergraduate
Students

1.710%

2.05%

3.76%

Direct
Unsubsidized
Loans

Undergraduate
Students

1.710%

2.05%

3.76%

Direct
Unsubsidized
Loans

Graduate/Professional
Students

1.710%

3.60%

5.31%

Direct PLUS
Loans

Parents of Dependent
Undergraduate
Students and
Graduate/Professional
Students

1.710%

4.60%

6.31%

Note that because of the lower T-Bill rate, these Direct Loan interest rates are approximately one-half percent lower than the comparable rates for 2015-2016.

Interest Rates for Direct Consolidation Loans

The interest rate for Direct Consolidation Loans remains the weighted average of the interest rates on the loans included in the consolidation, rounded up to the next higher one-eighth of one percent. There is no maximum interest rate for Direct Consolidation Loans.

Thank you for your continued support of the Federal student assistance programs.

 

Publication Date: 5/13/2016


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